Lord Goldsmith: My Lords, my noble friend is absolutely right. We want to look at removing, or at least raising, the cap, which at the moment prevents those with the most serious injuries getting the most compensation. But we also need to look at the lower ranges. Something like over 50 per cent of the awards are in the £1,000 to £2,000 range. We have done a survey to look at what people spend the money on. Very little of it is spent, for example, on the things that would deal directly with the effects of crime, such as cosmetic treatment or surgery or something of that sort, and that is partly because the compensation is paid very late. That is why we want to look at whether it makes more sense to provide immediate practical support to those victims and free up some cash for the most seriously injured.

Lord Tebbit: My Lords, will the noble and learned Lord give some consideration to the fact that compensation may be far too little in the event that victims who may need lifelong care may live far longer than expected or that it may be far too much if, sadly, they live for only a short time, in which case their families will inherit money for no good reason? Can we not give consideration to making the award in terms of an annual sum, which would be available to the victim for life and for life only? That would seem to deal with both those problems.

Lord Goldsmith: My Lords, the noble Lord makes a valuable and important point and it is one that we should be looking at in the context of the response to the Green Paper.

Lord Triesman: My Lords, I start by referring to the panel. It is perfectly true to say that it has not met for some time, principally because our focus in the FCO has been on the work of the EU presidency. But we have worked with the faith groups which are represented and with interested NGOs on religious freedom issues. I can say that we intend to fix a date for a further meeting of the panel within the next few months and we will be in touch shortly with panel members.
	We have been in touch with all the countries mentioned by my noble friend. We do not believe that the anti-conversion legislation in Sri Lanka is acceptable, and we make bilateral and multilateral representations. In India, although no specific cases of abuse have been raised with us, we are following the matter closely. In Pakistan, we are concerned at the discrimination faced by religious minorities and are actively engaged with the Government of Pakistan on the repeal or modification of its blasphemy laws. As I said in my initial response, we will pursue the issues of tolerance and religious freedom assiduously.

Lord Triesman: My Lords, most of our efforts consist of trying to work bilaterally with governments where we believe that there is a problem. On the wider international stage, along with our EU partners, we co-sponsored at the UN in November of last year a resolution on the elimination of all forms of intolerance and discrimination based on religion or belief. It was adopted without a vote. I shall not quote extensively from that document, but it shows precisely the values that I know are dear to the heart of this House.

Lord McKenzie of Luton: My Lords, it is not for the Government to opine on what interest rate levels should be. The purpose of the independence of the Bank of England is that the Monetary Policy Committee should set them. The noble Lord was right to say that the remit of the policy committee is to deliver price stability, but without prejudice to that objective, to support the Government's economic policy, including their objectives for growth and employment. The committee has done that. That is manifested in the fact that our economy has continued to grow. There have been 34 successive quarters of growth under this Labour Government and employment is at its highest level ever.

Lord Razzall: My Lords, notwithstanding the late conversion of the noble Lord, Lord Lawson, to the independence of the Bank of England, does the Minister accept that whether central banks should be concerned solely with price stability and inflation or whether they should also take into account other economic considerations is a real issue. Does he also accept that the Bank of England, since 1997, has probably been a beacon of achievement here when compared with the European Central Bank?

Baroness Anelay of St Johns: My Lords, I beg leave to ask a Question of which I have given private notice, namely:
	To ask Her Majesty's Government why a document from the UN High Commissioner for Human Rights which commented on the Terrorism Bill and which the high commissioner requested be laid before the House before Second Reading of the Terrorism Bill was withheld from the House by the Home Office during the Second Reading and Committee stage of the Bill.

Baroness Scotland of Asthal: My Lords, I am happy to say that it will not be necessary so to do because, as the noble Baroness will see, having had the advantage of reading that letter, all the issues raised by the commissioner have been raised by Members of this House, who have the acuity to raise them themselves. Those issues were raised both in the other place and here, and have been raised fully.

Lord Thomas of Gresford: My Lords, the stamp on the letter indicates that it was deposited in the House of Lords Library in 2006, after the beginning of the new year. It is document number 003. I presume that it was deposited at the very beginning of this year. No notice was given, either to my noble friend Lord Goodhart or to myself, of the contents of the letter, which has come to light simply by the assiduity of the noble Baroness who has raised this Question. Why were we not given direct notice of this letter, even if it had been received after Second Reading had taken place?

Baroness Scotland of Asthal: My Lords, I hope I made it clear that the House and the other place were both given official notice of this letter by way of Written Ministerial Statement on Monday of this week. We deposited it in the Library and we gave a response to that letter. I understand that it had been intended that the Written Ministerial Answer would be given before we broke. As a result of the illness of an official, it did not arrive until Monday, but, the matter came before the House as soon as was reasonably practicable.

Lord Foulkes of Cumnock: My Lords, will my noble friend repeat the dates that she gave in her reply? Is it not the case that the letter did not arrive until a week after Second Reading and that it was at Second Reading that the commissioner asked our attention to be drawn to it? Is it not also the case that in Committee there were no Divisions, so no irrevocable decisions have been taken, and that decisions can be made on Report? Is it not a fact that it was almost admitted—or, rather, it ought to have been admitted—by the noble Baroness that, far from the noble Baroness calling the Government to account on the matter and far from her misleading the House or deserving any criticism, she should receive an apology?

Lord Forsyth of Drumlean: My Lords, while entirely accepting that the Minister had no knowledge of this, is that not somewhat worrying? In my day as a Minister, the Bill team would have picked up a letter of this kind and a draft would have come to the Minister to write to Front Benchers informing them of what had happened. The fact that it took until the New Year to put the letter in the Library and to answer a Question suggests that there is at least something awry in the organisation of the Minister's department.

Baroness Scotland of Asthal: My Lords, the Bill team with whom I have had the privilege to work have been assiduous in their work. If there has been some misconnection, I do not say that it is as a result of a lack of diligence on their part. I hope that throughout the way that we have managed the Terrorism Bill and the other Bill, Members opposite have been given the greatest degree of facilitation and response from us on the detail.

Baroness Scotland of Asthal: My Lords, I hear what the noble Baroness says in relation to that. I agree that it is of the utmost importance that we should have opportunities to consider this. But I do not feel that we have in any way been disadvantaged. The issues that were of importance—and those who have read the letter will see that what I say is accurate—have been very well canvassed in all our debates. Indeed, during the debates we indicated that we were minded—and we will be minded—to bring forward amendments. I have indicated already that we hope to be able to do that by the end of today or tomorrow. This will give plenty of time before Report for further consideration and plenty of time for those who wish to pray in aid the UN commissioner if they feel that further or other support—other than the rhetoric of noble Lords—is necessary.

Lord Rooker: My Lords, with permission, I will repeat a Statement made in the other place by the Secretary of State for Northern Ireland.
	"Northern Ireland is governed best when governed locally. Since 2002, for reasons the whole House is aware of, that has not been possible. But our commitment remains absolutely clear: this Government believe that 2006 can be the year for the restoration of the Assembly and will work to that end as a matter of the utmost priority.
	"My predecessors have all referred to critical times for Northern Ireland. And there have been many. But this year is indeed a critical one, and especially for Northern Ireland's political parties, and specifically Assembly Members: 2006 is a make or break year for them.
	"If there is no restoration of the Assembly in prospect, then two stark realities have to be faced. First, public resentment within Northern Ireland continues to build at the continued payment of Assembly Members' salaries and allowances totalling on average £85,000 per Member while Stormont stands idle. Since it was suspended in October 2002, the Assembly has cost £78 million to maintain.
	"Countless times voters in Northern Ireland have asked me: how long can this go on? I want to tell the House today: not many months more. Secondly, no Northern Ireland political leader has disagreed with me that it would be traducing democracy to have elections—for a second time—to an Assembly that does not exist.
	"Elections are due in May 2007. For those to be meaningful we must have an Assembly exercising its full responsibilities. We therefore need to make progress urgently. We cannot let things drift.
	"Members of the Legislative Assembly were elected to be active members of a legislative assembly, working for their constituents in that Assembly. They have a duty to do so.
	"I want to see them discharging their responsibilities to their electors to govern on the shared basis the voters of Northern Ireland gave a mandate for in the 1998 referendum.
	"Of course this means building greater trust to deliver on commitments already made on all sides. Unionists and nationalists need to know that republicans are committed to exclusively lawful means. They need to know that all paramilitary activity, including criminality, has ended. The Independent Monitoring Commission is the body that will make an assessment. They also need to know that there is unequivocal support for the Police Service of Northern Ireland and the rule of law. And republicans and nationalists have to know that unionists are fully committed to fair and equitable power sharing.
	"But if people are serious about seeing a shared future based on fairness and equality, they must persuade each other of that.
	"I am therefore asking each of the political parties to agree dates for substantial discussions in early February with the British and Irish Governments to give their views on the way forward to restore the political institutions.
	"The Prime Minister, together with the Taoiseach, will be closely involved with developments during the year.
	"I also wish to inform the House about the Government's intentions as regards the Northern Ireland (Offences) Bill.
	"When I moved the Second Reading on 23 November, I said that it was necessary to help bring about closure to Northern Ireland's dark past of violence by resolving outstanding issues that had not been dealt with in the Belfast agreement, primarily that of terrorist suspects 'on the run'. Following the agreement, over 400 paramilitary prisoners were released on licence.
	"Although victims of atrocities were, understandably, in uproar at the sight of murderers and former terrorists walking free, it was the right thing to do to seal the agreement and lock in the peace.
	"But it left unresolved an equally difficult matter: the issue of what to do about those who had committed terrorist offences before 10 April 1998 and who, had they been in prison at the material time, would have been part of the Early Release Scheme. And it also left the question of what to do about others who might be prosecuted in future for crimes committed during the troubles before the Good Friday agreement.
	"The Northern Ireland (Offences) Bill is a challenge to everyone to look to the future, not to be trapped in the past and that challenge remains.
	"But, as I told the House then, I did not bring forward this legislation with a spring in my step because I knew how hard it was for those thousands of victims who had lost so much.
	"I knew that introducing this legislation would be difficult and uncomfortable: I neither sought nor expected the sympathy of the House for that.
	"Members of the House, particularly those from Northern Ireland, expressed their opposition to this Bill with great power and passion. In detailed discussion in Committee over many hours, those concerns were amplified with real commitment by Members across the Committee.
	"That passion was expressed no less powerfully outside the House in meetings that I and the honourable Member for Delyn had with victims groups.
	"In response to the arguments put to us in Committee, we have been drafting wide-ranging amendments to the Bill—including ensuring that defendants would have to appear before the Special Tribunal. And we were giving serious consideration to a time limit for the scheme.
	"The Government still feel that it was right to introduce this legislation, not least to honour the commitment made publicly by both the British and Irish Governments in 2003, a commitment that was a key building block in the process which saw the IRA end their armed campaign.
	"The Government could have proceeded with this Bill when the issue was first raised seven years ago. We could have done so when the Joint Declaration was made in 2003. But we did not because the IRA had not delivered on its promise to end its war. We waited until that happened.
	"Every Northern Ireland party vigorously opposed the Bill—bar Sinn Fein. Now Sinn Fein is opposed because it refuses to accept that this legislation should apply to members of the security forces charged with terrorism-related offences.
	"To exclude any members of the security forces who might have been involved in such offences from the provisions of the Bill would not only have been illogical, it would have been indefensible and we would not do it. Closure on the past cannot be one-sided. That was, is, and remains, non-negotiable. The process would have made people accountable for their past actions through the Special Tribunal before being released on licence.
	"Sinn Fein has now said that any republican potentially covered by the legislation should have nothing to do with it. But if nobody goes through the process, victims, who would have suffered the pain of having to come to terms with this legislation, would have had done so for nothing. That is unacceptable, and I am therefore withdrawing the Bill.
	"When I introduced this Bill I said that I would not presume to tell any victim that they must draw a line under the past. But the Government remain of the view that this anomaly will need at some stage to be faced as part of the process of moving forward. It is regrettable that Northern Ireland is not yet ready to do so.
	"We will reflect carefully over the coming months on how to move forward on this issue in the context of dealing with the legacy of the past. We will not rush to conclusions. I will take stock in the autumn.
	"In reflecting, we will be mindful of the views of all the political parties, the Select Committee on Northern Ireland Affairs, victims' groups and others. We are coming to the endgame of a long period of transition that began with the ceasefires of the early 1990s. As I have said before, the endgame in conflict transformation is often the hardest part, as it has proved in this case. But 2006 can and must be a year of historic progress in Northern Ireland. It must be a year in which we will see a devolved, power-sharing executive of local politicians taking the decisions that affect the everyday lives of the people of Northern Ireland. That goal should unite all Members of this House".
	My Lords, that completes the Statement.

Lord Smith of Clifton: My Lords, I, too, thank the Minister for repeating the Statement. We welcome both parts of the Statement: the first, slightly less important but nevertheless significant part concerns the continuing payment of the Members of the Assembly. Since the Assembly was suspended in 2002, your Lordships will know that I have regularly raised the question of continuing to pay salaries to MLAs. The Government were very reluctant to contemplate that, even arguing that they were still carrying out constituency duties and, even more questionable, that there was a need to sustain a political elite. Later, there was a token deduction and Mr Paul Murphy, the then Secretary of State, muttered about the problem of payment, which was echoed by the Prime Minister.
	I very much hope that the Statement today means that there will be no more prevarication or procrastination, no more huffing and puffing. If the devolved institutions are not up and running soon, MLA salaries should be stopped. That is explicit in the Statement, although it is too vague in saying that payment should continue for "not many more months". That is far too imprecise. Does the Minister agree that it would be better to set a specific date, say 31 May, after which remuneration will cease? Later than that, the marching season will be looming and that is always used as an excuse for a delay. Will the Government consider a specific date?
	As I remarked the last time that MLA payment was raised in your Lordships' House, the prospect of its withdrawal may well be a spur to interparty agreement to collaborate. The fear of such loss is one of the many things that unites Northern Ireland political parties across the community divide. We all wish for a quick restoration of the devolutionary settlement.
	We on these Benches—and I would guess, the whole House—are mightily relieved that the Secretary of State has decided to withdraw the Northern Ireland (Offences) Bill. It was welcomed by none. It solved nothing and antagonised most public opinion for one reason or another across the political spectrum in Northern Ireland. The idea that a superannuated judge should preside over some sort of process, in which alleged suspects, or those actually charged but on the run, or those convicted but who had escaped, who did not even have to appear before him or her, was a parody. It was an attempt to put some kind of figleaf legitimacy on what for all intents and purposes was a pardon by executive action. Such a notion was doomed to failure from the very start, but it could form the basis of a modern-day Gilbert and Sullivan operetta. We are pleased that the Government have withdrawn the Bill and congratulate them on bowing to the inevitable.
	In conclusion, I have two other questions for the Minister. Will he undertake that, in any future discussions on solving the problem of "on the runs", both Governments will have all-inclusive talks with all the Northern Ireland political parties and not just do a side deal with Sinn Fein? This matter will only be resolved by an open "treaty" openly arrived that.
	Secondly, will the Secretary of State consider that a fundamental part of moving Northern Ireland forwards is the shared future agenda? Last February, the then Secretary of State made a commitment to the other place to publish the first of the triennial action plans for a shared future in the autumn of 2005. When can we expect the plan to be published? Why are the Government failing to make improved community relations a priority?

Lord Rooker: My Lords, I am extremely grateful for the responses of both noble Lords, as indeed I was, on behalf of the Secretary of State, for the responses of the parties in the other place. There is not much more that I can say in addition to the Statement. Let us be clear: the Bill is dead. It will not be coming back. That does not mean that the issue goes away, which was recognised in both comments. This issue will have to be dealt with at some point in a legislative form. It is not something that can be done behind closed doors or by executive action, but the Bill is effectively dead.
	On the issue of victims' needs being paramount, as the Secretary of State said in the Statement, we knew that this would cause great upset to the victims and they made that abundantly clear, both to the Secretary of State and other Ministers. Therefore, we want to give careful thought to the issue. There is no deadline. The Secretary of State said that he would take stock in the autumn. Although there is no deadline, the issue will not go away and we want to make that absolutely clear. There needs to be a wider consensus and there must be a rebuilding of trust, which is implicit in the Statement, from both sides of the community.
	There must also be the acceptance by Assembly Members and putative Ministers of support for the police and the rule of law. This is a black-and-white issue: if you do not support the police and the rule of law, you are actually supporting criminals, rapists, muggers, thieves and embezzlers—that is the implication. You cannot expect to be in Government in that situation, so that is implicit. There are other parts of the process to be carried through, and we understand that there are further devolutionary moves ahead. We want to make it absolutely clear that there is no walking back from them.
	In reply to the noble Lord, Lord Smith of Clifton, there are no dates. To be honest, it would not have been helpful if the Secretary of State or the Government had said today that we will need to get an agreement, or that MLAs will lose their salaries, or that we will need the Assembly up and running, all by a certain date. We have made it clear about 2006; we have also made it clear—I think the consensus among all the party leaders is—that the elections that would normally take place in 2007 will not take place if the Assembly is not up and running in 2006. There must be a process for stopping those elections and that, as has been made clear, cannot be left until the last minute. So putting in a date of any kind at present would not act as a spur; in fact, it could have almost the opposite effect.
	The issue of the on-the-runs is, as I have said, one that we will have to think about and take stock of in the autumn. It is not a question of having no discussions, but there cannot be any side deals. The deal which was already done was reneged on by the one political party that had asked for the legislation. It wanted it and supported it, but it has reneged on it because it did not like it being double-sided; that is the bottom line here. It wanted one-sided treatment, which we are not prepared to accept. We have made that absolutely clear in the Statement.

Lord Rogan: My Lords, I thank the Minister for his Statement to the House this afternoon, and I also greatly welcome it. Today, the law-abiding people of Northern Ireland have received a late but much welcome Christmas present, with the Government not now proceeding with the Northern Ireland (Offences) Bill, or the on-the-run legislation. I am delighted that the Minister has at last seen sense and withdrawn that odious Bill, but it is a sad reflection that it took Sinn Fein/IRA to say that the Republicans would have nothing to do with that evil Bill before the Minister would agree to withdraw it.
	An evil, but necessary Bill: those are words used by the noble Lord, Lord Rooker, when he described and sought to justify that legislation to the people of Northern Ireland. I agree that the Bill was evil but totally disagree that it was necessary. That grotesque legislation should never have been brought before the House in the first place. It was seen by the victims of Sinn Fein/IRA violence and terrorism as yet another sop to republicanism. In welcoming the withdrawal of this Bill, I trust that these proposals or similar will not be introduced by the Government in another format in the future to placate republicans.

Lord Rooker: My Lords, I welcome that welcome for the Statement, although I reject some of the noble Lord's points, I do not wish to have an argument with him this afternoon. The Bill came as a surprise to no one; it was foreshadowed in writing in 2003, in public documents. Everybody knew what would happen if and when the IRA finally gave up the war. It was part of a commitment which the Government entered into and fulfilled. There is no consensus on the Bill and, indeed, the prospect of the victims getting nothing out of the Bill was one clincher in its withdrawal.

Lord Tebbit: My Lords, is the Minister aware that I was slightly surprised by the frankness of the Secretary of State when he admitted in a radio interview that the Bill had been brought forward as a result of a commitment made to the government of the republic and to IRA/Sinn Fein? Is he aware that I am, if anything, rather more surprised that the Secretary of State has admitted today that it has been vetoed by the IRA? A Government who would not accept the misgivings that were expressed in the other place, and were perhaps fearful of what might happen to the Bill here, have now allowed a terrorist organisation to veto a Bill which the noble Lord himself described as "necessary".

Lord Steinberg: My Lords, I am sure everybody is relieved to hear the Statement, and I am grateful for it. My noble friend Lord Glentoran has said what we feel. I do not want to talk not about the endgame or say that I am relieved that the Bill has been withdrawn—I want to ask where we go from here. It has already been mentioned that the Police Service of Northern Ireland must receive complete and unequivocal support from all political parties in Northern Ireland. I should be grateful for confirmation of that.
	Where we go from here, in talking about the endgame, draws me on to the subject of the considerable criminality, which, perhaps as a result of the lack of political movement, is greater now in Northern Ireland than it has been for some years. As noble Lords are probably well aware, we are not getting the dramatic explosions and shootings of soldiers—thank God. But we are getting a growing criminality cult, which makes it even more important that the Police Service of Northern Ireland is fully supported.
	Finally, because the people of Northern Ireland have had such a difficult time for so many years, does the Minister recognise that the act of decommissioning could have been done in a better and more straightforward way, as it caused for people in Northern Ireland and elsewhere a concern that it had not been done in a completely open way?

Lord Mayhew of Twysden: My Lords, I go back to a remark by the Minister a few minutes ago. He said that Sinn Fein had reneged on the agreement it had with the two governments and from which this Bill derived. Is it the case that from the very beginning it was made clear to Sinn Fein that the Bill would offer the same relief, if that is the right word, to security forces that was offered to the on-the-runs? In the light of the anguish suffered by the victims at the prospect of this Bill, which the Statement speaks of very eloquently, would it not have been a good deal better for all the implications of the Bill to have been thoroughly sorted out, established and nailed down before the Bill was ever introduced?

Lord Alton of Liverpool: My Lords, is there not a danger that the Government will be in a position where they are damned if they do and damned if they don't? Many of us should be grateful to both the Secretary of State and the Minister for the wisdom they have exercised in making this move today. Is the Minister not right to point us towards the long-term problem that remains? Looking at models elsewhere in the world that have dealt with justice and truth, does he agree that we need to try to create some sort of mechanism where people can own up to the things they have done in the past involving terror, murder, the deaths of thousands of people and the injuries of tens of thousands more—the victims who have been mentioned in your Lordships' House today? On both sides of the divide, with Loyalist groups as well now talking about disengagement from the violent process, we need to put something in place where people can own up to the past, wipe the slate clean and move on into the kind of democratic politics the Minister has outlined.

Lord Laird: My Lords, is the Minister aware that Unionists are concerned about going into an executive at Stormont with Sinn Fein? They fear that after a few months they might discover that they have gone into government with MI5. The noble Lord indicated in his Statement that republicans should be committed to exclusively lawful means. Does he mean that they must put and end to laundering criminally gained money and give up the property and businesses that the IRA owns in Dublin, Manchester, Blackpool, Liverpool and the Channel Islands, to mention but a few areas?

Baroness Park of Monmouth: My Lords, it is needless to say that I greatly welcome the fact that this Bill is temporarily dead, although I am concerned that the Statement suggests that other ways are still to be found of solving what the Government regard as the problem of the OTRs. What is happening about the victims commissioner who was supposed to be set up as part of this legislation? Does he exist and has he got a budget?

Lord Sainsbury of Turville: My Lords, I beg to move that this Bill be now read a second time.
	One hundred and fifty years ago, my predecessor Robert Lowe, later First Viscount Sherbrooke, brought forward the Bill that created the joint stock limited liability company. It was the first nationwide codification of company law in the world, and he has recently been described as "the father of modern company law". Our company law continues to have an excellent record. Since 1997 new incorporations have risen by over 60 per cent and the number of foreign firms incorporating in the UK has more than quadrupled. No doubt this is because, according to the World Bank's assessment, it is quicker and cheaper for companies to set up in the UK than in any other EU member state.
	We think that improvements can still be made. Companies operate internationally and recent legal judgments make cross-border incorporations easier. Overseas owners hold around a third of the stock in listed UK companies—more than twice the level in 1993. If we want these owners to continue to invest in UK companies, we need them to retain their confidence in our system of corporate governance.
	Over the past half century, a number of significant Companies Acts have been introduced by governments from all parts of the political spectrum, often following on from the deliberations of an expert committee. The first post-war legislation—the Companies Act 1947—implemented the Cohen report of 1945 and, among other things, proposed the requirement that a company's accounts represent a "true and fair view" of the state of affairs of the company.
	The Companies Act 1967 introduced, among other things, the requirement for all companies to file accounts with Companies House. Shorter Acts followed: in 1976, dealing with accounts and audit; in 1980, implementing the distinction between public and private companies; and, in 1981, making detailed provisions on the form and content of company accounts and implementing a European directive in this area.
	The 750 sections of the consolidating 1985 Act remain of course the centrepiece of our current law. This was followed in 1986 by the Financial Services Act, marking the beginning of a separate branch of legislation for securities, and by the Companies Act 1989, which implemented the EC's Eighth Company Law Directive on group accounts and the EC's Eighth Company Law Directive on the qualifications of auditors.
	I hope that that short and partial review of the past makes clear the need constantly to update our company law in response to changes in the way that companies do business and how that is often best done, as in this Bill, based on a previous review by independent experts and taken forward largely on a cross-party basis. I hope that we can, as far as possible, continue that tradition. That said, I do not think that the Bill is merely "business as usual". In its clear focus on simplification, on the needs of small businesses, which are so important to our economy, and on deregulation, I believe it represents a break with the past.
	The Bill has been drawn up in a unique partnership with business. In 1998, we commissioned the Company Law Review—an independent group of experts, practitioners and business people—to take a fundamental look at our system of company law. The review conducted a thorough and authoritative assessment of the changes that need to be made and is the essential blueprint for the reforms we now propose.
	The review was followed by two White Papers, in 2002 and 2005, and by further consultation on specific proposals. The Bill includes significant deregulatory change and, based on the information we have had from stakeholders, we estimate that it will produce savings for business of around £250 million a year, of which £100 million a year will benefit small business. That includes: significant savings relating to moves away from paper communications towards electronic communications, which could be close to £50 million per year for FTSE-listed companies alone; benefits for many companies, particularly smaller private ones, of simplifications to the way they take their decisions, including, for example, removing the requirement for them to hold annual general meetings and a move towards greater use of written resolutions with savings perhaps in the range of £25 million to £100 million a year; greater clarification provided by the Bill on directors' duties; and the general savings to companies, their advisers and all users of the law from redrafting it and providing a clearer structure and language.
	It is also important to emphasise the less easily quantifiable, but no less real, economic benefits which we believe could arise for all companies and for the economy as a whole from the enhancements to corporate governance, shareholder engagement and the modernisation of decision-making processes that the Bill introduces.
	The Bill repeals about two-thirds of the Companies Acts 1985 and 1989, including all the provisions most frequently used by small companies. The legislation has been reordered and redrafted in clearer language to make it much easier for companies of whatever size to understand the requirements on them. I hope that noble Lords will be able to join me in complimenting parliamentary counsel on the clarity of the drafting, which has been favourably commented on by a number of those whom we have consulted.
	Noble Lords may ask why the Bill is not a complete consolidation of existing company law. That is largely a case of reflecting the views of those whom we consulted. They told us that they wanted to see restatement of the areas which were of day-to-day relevance but not to see provisions reworked for the sake of it.
	On capital maintenance, for example, which is a large chunk of what remains in the 1985 Act, we are pressing for fundamental reform in the EU. To restate in advance of that would not be helpful for users, although the Bill does make some useful specific changes. In practice, we are told that, when referring to company law, users use publications such as Butterworths, which shows the Acts as amended and includes relevant statutory instruments and, indeed, financial services legislation.

Lord Sainsbury of Turville: My Lords, as I was saying, this is not what we have been asked to, and not what business and lawyers want us to do. In any case, if we were to consolidate all company law, we would shortly be faced with a situation on capital maintenance which would involve another Bill, and it would no longer be consolidated. It is simply not possible to have a consolidated Bill which holds for a lengthy period of time and, as I said, it is neither desirable nor necessary, nor what people want.
	The Company Law Reform Bill has four key objectives: enhancing shareholder engagement and a long-term investment culture; ensuring better regulation and a "think small first" approach; making it easier to set up and run a company; and providing flexibility for the future.
	Better regulation is at the heart of the Bill. As it stands, our company law was originally designed for large companies with numerous public investors, but over 90 per cent of companies have five shareholders or fewer. We have lifted from private companies the burden of unnecessary provisions, and drafted the provisions they use most often in a more accessible way. We will also ensure that small companies and their advisors have easy access to plain English guidance on what they need to know about the law.
	The Bill follows the important principle, established by our predecessors, of enabling shareholders to be the primary regulators of corporate behaviour rather than the state. Companies exist for the benefit for all their members collectively and need the freedom and flexibility to create wealth. Corporate law and governance must be designed to encourage and enable companies to create the internal structures and controls that will promote trust and transparency, and lead to better performance.
	The Bill is part of a wider programme of government and business-led reform. In 2002, we launched a review by Sir Derek Higgs on non-executive directors, which led to an updating of the Combined Code on Corporate Governance. That year we also introduced regulations to require quoted companies to put the directors' remuneration report to a shareholders' vote. The Companies (Audit, Investigations and Community Enterprise) Act 2004 ensured better oversight and stronger regulation of the accounting and audit profession, strengthened powers to investigate companies and created the framework for community interest companies. We have also raised the audit thresholds, so that some 69,000 companies no longer have to have their accounts professionally audited.
	I now come to the Bill itself, which is 885 clauses long, partly because of its simplicity, with shorter, clearer clauses. If the Opposition think that this is not a matter of great interest to small companies and businesses—to have the document in a clear, simple form with short clauses—they do not understand what business is about. I should add, in the light of a claim by Conservatives this morning, that the Bill is not deregulatory. It contains 885 clauses, but repeals only 642 clauses of previous Company Acts. There must be more intelligent ways of measuring the financial impact of a piece of legislation than simply counting the clauses.
	As I have shown, the Bill significantly reduces the financial burdens on industry. Also to say in the same press release that a Bill which covers such issues as directors' duties, the limitation of auditors' liabilities, shareholders' rights and the provision of a statutory footing for the Takeover Panel is a mouse of a Bill suggests to me not so much that the Conservative Party is standing up to business as that it is losing touch with it and with reality. These are extremely important issues; they are known to be important issues to business. To describe this as a mouse of a Bill is simply to lose touch with the real world. The Bill is long and I hope that the law will be clearer as a result. I shall summarise some of the key elements.
	Parts 1 to 7 of the Bill deal with the fundamentals of what a company is; how it can be formed; and what it can be called. These clauses remove any obstacles to "electronic incorporation". The Bill enables the Secretary of State to set out default model articles for different descriptions of companies. We published draft default articles for private companies in our 2005 White Paper. They are radically simplified to reflect the way in which small companies operate. This approach was developed with the involvement of small companies.
	Part 9 will ensure that companies can enable indirect investors to exercise certain governance rights. Investors today increasingly hold their shares in listed companies through intermediaries—for example, through nominee holdings—and thus rely on contractual arrangements both to obtain information and to give any instructions about how they wish shares to be voted. These provisions are intended to ensure that companies can extend certain rights of members to investors holding through intermediaries. They also provide a power to make regulations to compel companies to provide information to those nominated by a member, subject to consideration of possible costs and benefits.
	Part 10 introduces a statutory statement of directors' general duties. The statutory statement reflects the recommendations of the Law Commission, the Scottish Law Commission and the Company Law Review, and it will provide much greater clarity on what is expected of directors. I shall highlight two points. The statutory statement is, for the most part, a codification of the current law and preserves the existing civil consequences of breach of the duties. The duties are owed to the company rather than to shareholders individually or to other stakeholders.
	The duty to promote the success of the company answers one of the fundamental questions in company law: "in whose interests should companies be run?". In line with the recommendation of the Company Law Review, the Bill's answer is that directors should run the company for the benefit of its members collectively. However, directors will not be successful in promoting the success of the company if they focus on only the short-term financial bottom line. Successful companies see business prosperity and responsible business behaviour as two sides of the same coin. That is why, in line with the recommendation of the Company Law Review, the Bill adopts an approach known as "enlightened shareholder value", under which a director must, in promoting the success of the company, have regard to factors such as the long-term consequences of business decisions and the impact of the company's activities on employees, the community and the environment.
	The duty to exercise reasonable care, skill and diligence mirrors the tests laid down in Section 214 of the Insolvency Act 1986. As such, it reflects the judicial development of this duty in recent years and includes an objective assessment of a director's conduct.
	The duties relating to directors' conflicts of interest introduce two changes to the very strict principle in the current law that directors must not place themselves in a position in which there is a conflict between their duties to the company and their personal interests or duties to others: first, transactions between a director and the company will not have to be authorised by either the members or the board, but will instead need to be declared to the other directors; secondly, board authorisation will be permitted in respect of most conflicts of interest arising from third-party dealings by the director.
	Chapter 8 of this part implements the Company Law Review's recommendation that it should be possible for any director to have his home address protected. It will no longer be necessary first to show risk of violence or intimidation.
	Part 11 describes the mechanism by which members may enforce directors' general duties on behalf of the company. It implements the recommendation of the Law Commission that there should be more modern, flexible and accessible criteria for determining whether a shareholder can pursue such an action.
	Part 12 removes the requirement on private companies to appoint a company secretary. Some such companies may wish to keep a secretary; this will be for them to decide.
	The provisions in Part 13 on company decision-taking are an example of our "think small first" approach. The key changes are that the Bill is drafted on the basis that private companies will not need to hold annual general meetings (AGMs); it will be easier for private companies to take decisions by letter, e-mail or other electronic means; the law will extend shareholders' rights to appoint proxies; shareholders of public companies will have the right to have AGM resolutions circulated at the company's expense if tabled before a certain date; and shareholders of quoted companies will have the right to request an independent report on a polled vote.
	Parts 15 and 16 cover the accountability of officers to members. The provisions on reports and accounts have been reordered and redrafted to make it easier for companies of whatever size to find the requirements relevant to them.
	Noble Lords will be aware that, since the Bill was introduced, the Chancellor announced the Government's intention to repeal the operating and financial review provisions that apply to quoted companies, and amending regulations were laid on 15 December. These companies will need to comply with the requirements for a business review, which are in most respects very similar. I must stress that our commitment is as strong as ever to improving strategic, forward-looking narrative reporting by companies and to enhanced dialogue with shareholders based on such reporting.
	We intend to bring forward appropriate amendments to the Bill to reflect this change of approach. Before doing so, we have invited comments on whether any particular requirements of the business review need to be clarified to achieve more effectively the Government's objectives regarding the business review and on any other considerations that we should consider in deciding how to frame suitable amendments for the Company Law Reform Bill on these matters. Some companies are considering whether to publish an OFR on a voluntary basis or to provide voluntary supplements to the business review in order to provide all the information for shareholders and others in one place. We welcome an approach that further increases transparency and the information available to shareholders.
	The business review requirements should also be seen against the background of the new statutory statement of directors' duties in the Bill. Views have been invited by 15 February and we intend to take them into account before bringing forward amendments to these provisions.
	Part 16 brings together and clarifies the existing provisions on auditing and adds a number of important new provisions. It will enable a company and its auditor to agree a limitation on the latter's liability, which has until now been prohibited. A limitation will require shareholders' approval, and must be fair and reasonable. If not, it can be challenged and the court may substitute its own limitation. There is a new offence for those who knowingly or recklessly cause misleading, false or deceptive audit reports to be made.
	In response to concerns expressed by some of those we consulted, we have taken the opportunity to reinforce, in Parts 15 and 16, the "true and fair" principle that underpins the preparation and auditing of all company accounts. This is a common-sense principle that if the accounts do not provide a "true and fair" view of the company's financial position, directors should not sign them off and the auditors should not give an unqualified report. There are other changes designed to improve the quality of audit service.
	Parts 17 to 22 deal with raising share capital and takeovers. There are a number of deregulatory measures for private companies, including abolishing the prohibition on the giving of financial assistance by private companies and enabling private companies to reduce their share capital using a new solvency statement procedure for capital reductions. This part also clarifies the circumstances in which companies may make an intra-group transfer of an asset at book value. Part 20 extends the existing power relating to transfer of securities under Section 207 of the Companies Act 1989 so that it could be used to require, as well as to permit, the paper-free holding and transfer of company shares. This reflects the work of an industry working group that has been looking at options.
	Part 22 includes provisions implementing the European takeovers directive. These will place the activities of the Takeover Panel within a statutory framework for the first time. The constitutional and operational autonomy of the Takeover Panel will be maintained. However, important new powers are to be extended to the panel, including statutory rule-making powers, the right to have its decisions enforced through the courts and the ability to prescribe sanctions against those who transgress its rules. The Bill's provisions aim to ensure that tactical litigation seeking to delay or frustrate a takeover bid will not become a feature of our takeover markets. The directive needs to be implemented by 20 May. Given the length of the Bill, we have given thought to the need for interim provision, should the Bill not receive Royal Assent before that date.
	Part 28 provides for greater use of electronic communications, which will enhance the immediacy of dialogue between companies and their shareholders and produce significant cost-savings. Subject to shareholder approval, companies will be able to use e-communications as the default position. Individual members will retain the right to request continued communication on paper if they wish.
	Part 31 covers flexibility for the future. Modern legislation in technically complicated fields often leaves the more detailed provisions to subordinate legislation. Much of company law, by contrast, has been written into primary legislation. This is simply a side effect of history, but has meant that updating the law to reflect the changing business environment is not always straightforward. The Company Law Review recognised this problem, and one of its key recommendations was that in future only the principles of company law should be placed in primary legislation and the detail should be written into secondary legislation. We examined this proposal carefully but found that it was not always straightforward in practical terms and concluded, after wide consultation, that the issue would be better addressed by the creation of a Reform Power for Company Law that could be used to amend primary legislation by super-affirmative procedures. The proposed reform power is set out in Part 31 of the Bill.
	We recognise that the power is wide and novel, and raises significant issues which will need to be carefully considered by the House. We are grateful for the report of the Delegated Powers Committee, and the views provided by the Select Committee on the Constitution. The important contributions from these committees have raised powerful arguments against the proposal, and the Government are carefully considering the points made. At the same time, there seems to be common recognition that the problem of keeping company law up to date needs to be resolved, and the Government believe that the underlying rationale for the power remains a strong one. This is a crucial and difficult area, and I look forward to debating it.
	Part 33 implements aspects of the eighth Company Law Directive on the statutory audit of accounts. We are also implementing the recommendation contained in the report Holding to Account by the noble Lord, Lord Sharman, that the Auditor General should be able to carry out statutory audits on non-departmental public bodies.
	Part 34 inserts provisions into the Financial Services and Markets Act 2000 that will allow the Financial Services Authority to make rules for the purposes of the Transparency Obligations Directive. This part takes the first step in implementing the central recommendation of the Morris Review of the Actuarial Profession, that the Financial Reporting Council should oversee the actuarial profession. It is intended that oversight of actuaries will be put on a statutory basis in due course; in the mean time, these clauses aim to facilitate the effective operation of a voluntary regime. The Government also take a power to be able to require institutional investors, through whom the public invest in long-term savings products, to disclose how shares they own, or have an interest in, have been voted. Some institutional investors are already making such disclosures. We want to see such practice extended.
	Part 35 provides that companies in Northern Ireland will be covered directly by the Bill, which legislates for the whole of the UK. At the moment, the law in Northern Ireland is virtually identical to that in Great Britain, but it is made by separate legislation specific to Northern Ireland. This inevitably follows on behind the legislation in Great Britain and means that companies in Northern Ireland face delays before they can get the benefits of the changes being made. Recent public consultation showed that businesses and their representatives in Northern Ireland would welcome simultaneous legislation, and this is what the Bill provides. This does not affect the underlying position that company law remains in formal terms a transferred matter, and a future Northern Ireland Assembly will be able to legislate separately if it so chooses.
	This is a long Bill but it will bring significant improvements in many areas of company law. It has the potential to bring significant savings for business, delivers on the "think small first" principle, and updates the law for the benefit of our largest companies. It also benefits investors. Many people have been involved in the thinking behind this Bill and we are very grateful for all the input we have received. The reason why the Bill has been so widely welcomed is due to the close involvement over a number of years of so many interested parties. I trust that it will attract a similar degree of support from this House, and commend the Bill to the House.
	Moved, That the Bill be now read a second time.—[Lord Sainsbury of Turville.]

Lord Hodgson of Astley Abbotts: My Lords, I must begin by thanking the Minister for his gallant attempt to précis this gargantuan Bill. I apologise for my merriment, but his belief that the need to simplify company law gave rise to a Bill of 885 clauses seemed a little far-fetched to me in the first instance. No doubt we shall discuss that in Committee.
	It is also only fair that I should congratulate the Government on finally bringing forward the Bill. We have certainly been waiting a long—some would say a very long—time for it. In her forward to the White Paper, Modernising Company Law, published in July 2002, the then Secretary of State, Patricia Hewitt, wrote:
	"Now our challenge is to build on this by promoting enterprise and raising productivity. Market frameworks drive enterprise and productivity, and company law is a key part of that framework.
	That is why my predecessor at the Department of Trade and Industry . . . launched the Company Law Review in 1998".
	By my calculations, that means that it is seven years since the Government set out on this road and seven years seems an unconscionably long time to complete—if we have completed—what the Government described as a key part of the framework. Anyway, we are where we are and we welcome the appearance of the Bill.
	I had the pleasure of working with the Minister during the passage of the Companies (Audit, Investigation and Community Enterprise) Bill when it came through the House in the spring of 2004. A number of us asked the Minister when the main course—we regarded the 2004 Bill as merely an appetiser—would be served. The noble Lord, Lord Wedderburn, from whom we are all looking forward to hearing later, said:
	"It has only recently occurred to me that we have been prompted to introduce . . . the Bill, representing only a small morsel of company law reform, because of the slow pace of company law reform in general. I look forward to the day when the Minister presides over a big companies Bill, one brought forward in 2005, 2006 or 2007—no doubt he will still be in office—but so many matters are now urgent in company law reform that some have now overtaken the Company Law Review".
	Does the Minister recall his reply? Perhaps I can refresh his memory. He said:
	"I am pleased that my noble friend Lord Wedderburn is looking forward to the day when I will bring forward a new companies Act. My personal view is that I hope I will have been sacked or some other act of God will have intervened before such a happy occasion takes place".—[Official Report, 17/03/04; col. GC110 and 115.]
	Clearly the Prime Minister thinks that the Minister is doing such an outstanding job that he cannot be moved and this whopping great Bill is to be his reward.
	Your Lordships' House can claim to have a special expertise in matters of company law. The galaxy of talent that will be contributing to our debate today shows that. Perhaps I will be forgiven if I say that I am particularly looking forward to the maiden speech of my noble friend Lady Bottomley of Nettlestone. Before I go any further, I need to declare some interests. I am a director of five companies, one listed on the Stock Exchange, one a mutual company and three private companies. I am also a trustee of two pension funds and chairman of the trustees of one of them. All of those appear on the Register of Members' Interests.
	The press release that accompanied the publication of this Bill at the beginning of November suggested three major strategic objectives for the Bill: promoting enterprise and stimulating investment in the United Kingdom; making the law more accessible and thinking small first; and contributing to a better regulation agenda. Who could object to such worthy aims? My party certainly does not, so we are happy to give an in-principle welcome to the Bill if—and it is a big if—the actual provisions of the Bill fulfil these objectives.
	The Minister has already argued that, given the length of time, all the proposals contained in the Bill have been heavily trailed and consulted on. That may be so, but coming as I do fresh from a marathon session on the Charities Bill—60 hours in Committee and a Bill which it was claimed had been equally widely consulted on—I have to say to the Minister that the appearance of proposals in statutory form has an extraordinarily mind-focusing affect on people for whom up to now it has been something of an academic exercise. So we shall be consulting widely and probing the Government's policy ideas deeply and carefully.
	The main yardsticks by which we on these Benches shall be judging the Bill are three. First, is it deregulatory as the Government claim? When I was a small boy, my grandmother used to say to me, on occasions when she felt that I had been a little careless in the accuracy with which I had reported events to her, "That makes my toe tingle". Faced with a Bill of 508 pages, 885 clauses and 15 schedules, which the Minister claims is deregulatory, I have to say to him, "That makes my toe tingle".
	In this connection, the Minister's colleague in the other place, Mr Gerry Sutcliffe, when introducing the Bill to the All-Party Group on Corporate Governance, described it as deregulatory. I asked him how many clauses of previous Companies Acts would be repealed in consequence. He did not know. He referred the matter to his officials who were present. They did not know either. Not exactly an encouraging start.
	The second yardstick is: does it make company law more comprehensible—or, as the Government like to say, "accessible"? The Minister will recall from our debates on the previous Companies Bill my frequent complaint about the archaeological nature of company law—layer upon layer of changes piled on one another, making the subject incomprehensible to all but the cognoscenti.
	It seems to me that in this connection the Government have failed in at least one major respect: even after we have dealt with this monster, we have still not rid ourselves of the Companies Acts 1985 and 1989. It is not clear why some parts of the 1985 Act have been moved across and others not. For example, Clause 152 of this Bill repeats word for word Section 303 of the 1985 Act, the resolutions to remove a director. Others have been moved in part and so now straddle the Bill and the 1985 Act. For example, the reduction of capital—a complex area—is now split between Clause 561 of the Bill and Section 135 of the 1985 Act. Finally, some have not been moved at all. Would the Minister not agree that if the Government wanted to make the law more accessible, consolidation should have been completed and not left half done?
	The third yardstick is: do the proposals strike the right balance? We need a dynamic corporate sector and we need men and women of high quality to serve as executive and non-executive directors. Do these proposals achieve this? It is all too easy to ossify our corporate structures by a series of box-ticking, risk-averse measures. The Minister should not forget the Schumpeter doctrine of the need for "gales of creative destruction" as an essential, if uncomfortable, part of a dynamic economy.
	Before turning to the Bill itself, I should let the Minister know that my noble friend Lady Noakes has agreed to focus her formidable intellect and forensic accounting experience on Parts 15, 16 and 33. She has also kindly agreed to wind up the debate today. My noble friend Lord Freeman has agreed to turn his experienced eye to the important provisions of Part 10, which relate to company directors and their duties. I am grateful to them both. For the rest of the Bill, the Minister will, I am afraid, have to put up with me.
	I turn now to the Bill itself. Obviously I cannot deal with all our points in a huge piece of legislation such as this in a short speech. I have to confine myself to certain major areas. First, I am happy to accept the Minister's invitation to congratulate the draftsmen and the Government on the way the Bill has been put together. It follows a helpfully logical sequence and this will undoubtedly assist our process of scrutiny.
	But this leads to a general point. A substantial proportion of the Bill is made up of sections transposed from the 1985 Act. The transposition is not, in all cases, on a word-for-word basis. The Minister, I am sure, will argue that such wording changes are merely to reflect modern usage and parlance. But he should be aware that many company lawyers do not see it thus; rather they are concerned that changes in wording may be seen in the courts subsequently as indicating a change in the wishes of Parliament. So we shall be tabling a number of amendments, on a probing basis, to enable the Minister to explain on the Floor of the House when wording changes are just that and when they indicate a shift in policy and thinking.
	Secondly, there is the familiar issue of regulations. As is so often the case today, the Bill we are discussing is, in many cases, a skeleton of principles—the detailed flesh and blood will be contained in regulations. The power to make regulations appears in some 16 different places in the Bill. While principles clearly are to stand alone, the quality of our scrutiny will be much improved if we know something about the detail the Government have in mind.
	Could the Minister let us know which sets of draft regulations he expects to be able to publish in time for the Committee Stage of the relevant sections?
	Turning to specifics, our first major area of concern arises with Part 9, the exercise of members' rights. On these Benches we believe strongly in the concept of a share-owning democracy. Such a democracy will flourish and grow if individuals feel involved in the performance of the companies they invest in. To feel involved people need information. More and more people, quite sensibly, hold their shares in PEPs or ISAs, the holdings of which perforce have to be in the manager's nominee name. It is not clear to us whether the provisions of Part 9, as presently drafted, are likely to lead to a proper degree of dissemination of information about the performance of individual companies to their shareholders. Indeed, there is a feel to this and other parts of the Bill that makes one think it has been drafted with big companies and big shareholders in mind. We want to ensure that the interests of the small battalions are not overlooked.
	I am sure we will want to have a serious look at Part 10, which concerns company directors. UK plc needs men and women of the highest quality to lead from the front and it is crucial that we do not scare these people away. For this reason, my noble friend Lord Freeman intends to look carefully at this part and ensure that the right balance has been struck.
	I turn next to Part 11: I noticed in the Financial Times, on Wednesday 9 November, a letter from Alun Michael MP in which he stated that the derivative action, as detailed in Part 11 of the Bill, does little more than elevate to a statutory basis a long-held common law procedure. As the Minister knows, I am no lawyer. However, the legal advice we have received suggests that as the law currently stands this is available only where the wrong done to the company amounts to fraud and the wrongdoers themselves are in control of the company and thus able to prevent the company from suing. By contrast, this Bill will allow a derivative action by minority shareholders in cases of negligence, default, breach of duty or breach of trust. We wait to see whether the Minister will stand by his colleague in the other place in his claim that this is not a major change in the law.
	We shall also wish to explore the abolition of the requirement that private companies have company secretaries, addressed in Part 12. This is an issue that has been fiercely fought over by parties on both sides of the argument, and I think it is fair to say that the final position published in the Bill is not one that was anticipated during negotiations. It is clear that in some circumstances company secretaries may not provide value, for example for particularly small companies. However, there comes a size at which they do begin to add value and clarity, even for private companies, in defining the functions and duties of a company and thus providing protection to shareholders. We want to ensure that this line is drawn in the correct place.
	I know we want to look at the implications of Part 14, which lays out the basis for political donations by companies. I am all for transparency but we also need fairness, and what is sauce for the corporate goose must also be sauce for the trades union gander.
	As I said earlier, my noble friend Lady Noakes will be dealing with Parts 15 and 16. I am sure she will wish to discuss auditors' liability and a number of other points covered in these chapters. All I wish to do now is to ask the Minister whether, in light of his earlier comments, this means that he will be tabling an amendment to leave out Clauses 393 to 395, which concern the Operating and Financial Review. From his remarks, it was not quite clear to me whether that was being abandoned.
	One of the Government's stated aims, as I pointed out, is to modernise and simplify business in the UK. A proposal in the White Paper in March 2005 was the dematerialisation of share certificates. The Bill reflects this in Part 20, Clauses 585 to 587, which provide a power for the Secretary of State to require all quote companies to issue electronic share certificates. The Bill requires the Secretary of State to consult before exercising this power. However, there are those who are concerned that this is not the right way to implement modernisation, nor that the requirement to consult goes far enough. There is a fear that any exercise of such a power would be very likely to be unfair to the smaller shareholder—an end result that does not fit well with the Government's objective of thinking "small first." I hope the Minister will be able to allay my fears in this regard.
	The Takeover Panel has been one of the great regulatory successes of the last 30 years and has played an important role in the continuing prominence of London as a world class financial centre. Its ability to operate in a free-flow manner has led to it being respected as quick, flexible and responsive to the needs of the mergers and acquisitions market. We understand the purpose of the EU Takeovers Directive which is contained in the provisions of Part 22, but we will wish to probe for any gold-plating of the directive and whether there is any risk to the methods of operating which have been an integral part of the Takeover Panel's success to date.
	The Minister will also have noticed the concerns expressed by the Delegated Powers and Regulatory Reform Committee at paragraph 15 of its report on the Bill about the interface between the panel's unlimited power to levy penalties, its stand-alone membership and this first appearance in statute law. We shall wish to examine this difficult balance.
	We expect to hold a major debate on the reform power in Part 31. We agree that to meet the demands of UK plc, company law needs to be malleable and adaptable to the changing environment. However, we also need to be sure that the procedure proposed allows for a proper degree of parliamentary scrutiny and public consultation. Again, the Delegated Powers and Regulatory Reform Committee has undertaken an invaluable service in highlighting the complex issues involved.
	To conclude, we on these Benches give an in-principle welcome to the Bill. But it is clear that there is a lot of work for us to do to illuminate, tease out and clarify its detailed provisions. Company law reform may not set many parliamentary pulses racing, but, as the Minister pointed out, it has a huge influence for good or ill on British industry and commerce.
	My final point is not related to a specific part of the Bill. Instead, I look to Europe. It is my understanding that a number of changes to directives may influence how UK authorities may apply company law. I am also aware that the Commission is expected to announce shortly a review of the company law action plan. Will the Minister reassure me that the Bill will not be immediately rendered otiose by future changes in EU law? If we all find ourselves back here next year discussing a new company law reform Bill, then I can only share his 2004 hope that we will all have been sacked or that God will have stepped in during the intervening period.

Lord Sharman: My Lords, I must first declare an interest: I am the chairman of two listed companies, and I sit on the board of two others.
	I, too, welcome the Bill. As the noble Lord, Lord Hodgson, said, it is long overdue. We have asked for it on many previous occasions. I welcome the aims behind the Bill, which the Minister has outlined succinctly, particularly those of simplicity in regulation. I give a particular welcome to the provision that implements my recommendation.
	This is a huge piece of legislation. The changes are very significant—it undertakes a root-and-branch reform of the law. Given the Bill's importance to the business community, the investing community and other stakeholders, I would have liked to have been able to support it without any reservations. But sadly, I cannot. Some concerns have already been raised by the noble Lord, Lord Hodgson, and I will not repeat in detail what he has said. However, I join him in expressing concern—disappointment, really—that the Government have not produced a consolidating Bill. I note what the Minister says about the rationale behind the Bill, but I cannot agree with his reasoning. We still end up with the 1985 Act partly repealed, and company law contained in both the 1985 Act and this Bill—what the noble Lord, Lord Hodgson, referred to as an archaeological approach to company law, although it is to be hoped that we now have a shallower dig. I look at this rather like peeling back the layers of an onion—we do not have so many layers to peel back but we still have it to deal with, and I am not entirely convinced that this is the right way to go about it.
	My second major concern is the wide powers taken in Part 31 to introduce changes in future by use of regulation. I do not object to that in principle; in particular, I believe that the ability to respond quickly is a very valuable tool. But I am concerned that the Bill does not give us much guidance and I would like to hear about the processes of consultation. How wide will it be? Who will determine it? The Bill seems to indicate that that will be entirely in the hands of the Secretary of State. I would also like to hear about whether the outcome of that consultation and the regulations proposed will be subject to the affirmative resolution procedure of both Houses.
	Thirdly, I turn to the troubled issue of the Operating and Financial Review and its relationship with the business review for all companies. I thought I heard the Minister say that he would introduce proposals to eliminate the need for that. Sadly, as most people will acknowledge, the Chancellor's statement abolishing the OFR simply did not earn him the brownie points from the business community that he anticipated. In my judgment, he had not understood that many companies are already a long way down the track in producing these kinds of reports. Investing bodies like the notion of an OFR and the issues that have given rise to concern did not involve whether there should be an OFR, but involved some of the data that were to be required—for example, the degree to which forward-looking data had to be included; whether confidential commercial information by way of key performance indicators needed to be in there; and an earlier concern which had been put right about the degree of care. All of those issues could have been dealt with and resolved.
	I do not believe that we have got to the right solution here. We have about a third of corporate value tied up in intangibles and we now have IFRS numbers being produced. They are highly volatile and not widely understood by the investing community. More than ever now there is a need for good quality corporate reporting. The expectations of investors and the NGOs in the corporate social responsibility community—if I can use that phrase—are high, which inevitably impacts on the reputation of business. We already have the Accounting Standards Board and the Institute of Directors talking about incorporating an OFR requirement within the combined code. I have no doubt whatever that companies will continue to produce OFRs regardless of whether there is a statutory requirement. It would be useful if the Minister could clarify, perhaps with more detail, where we are heading on this matter and whether it is to be left to the FRC or the ASB to produce something outside the legislative framework.
	Finally, on matters affecting the Bill as a whole, I return to the issue of European company law reform and the directives being issued. I understand that matters of company dividend distributions could not be dealt with in the Bill because they will be dealt with in the European fifth directive. Will the Minister confirm that the Government will continue to press for a change in the basis by which company dividends can be made away from a reserves-based distribution to a solvency test? The reason for that is again related to the issue of IFRS standards. As I said before, results are becoming extremely volatile. We have all sorts of funny things going through accounts today which previously did not. The result is that companies are beginning to engage in transactions to create distributable reserves at the right point within the group. It would be much better, and much simpler, if we moved to a straight solvency-based test for determining whether dividends can be paid.
	Those points cover the overall Bill. However, I want to draw the attention of the House to several areas in which we support the intentions behind the Bill but on which we have reservations whether the Bill as drafted will be workable or achieve the desired objectives. The first relates to directors, and the noble Lord, Lord Hodgson, has already referred to Part 10. The notion that corporate endeavour, on which old-style corporate legislation was based, is a partnership between the providers of capital and the management of an enterprise has been overtaken by a more broadly-based model, reflected in this Bill, commonly referred to as enhanced shareholder value.
	We welcome that, but the clauses in Chapter 2 of Part 10 in particular are flawed and not workable. Commentators such as the Law Society, while supporting the aims of clarification of directors' duties—which I also support—does not believe that that has been achieved. The new provisions are said by the guidance notes to provide greater clarity on what is expected of directors and make the development of the law in this area more predictable. However, it is argued that the provisions are inflexible and will restrict the courts. The code has not adopted common law terminology and introduces new concepts that will make remedies more difficult to apply. For example, Clause 156(3) requires directors to fulfil their duties,
	"so far as reasonably practicable".
	We are advised that that it is both ambiguous and otiose. We question whether it will require senior directors to set up expensive and extensive internal procedures to create audit trails in respect of any authority which they delegate down the management chain.
	My second concern relates to the provisions creating a new regime under which shareholders may bring actions for negligence, default, breach of duty and breach of trust. While there are safeguards linked to the statement of directors' duties, there are concerns about the potential for abuse and particularly the timing of court involvement. Why is it not possible to have the court involved earlier in the process so that you do not engage in a waste of time which the court then throws out?
	The third area of concern is the exercise of voting rights by institutional investors. Essentially, what is called a long-stop measure has been taken—a power to require voting disclosure. I am unsure why that is necessary. The Company Law Review said that it was desirable, for example, for beneficiaries, members of pension funds and so forth. However, in very many cases the voting policy of intermediaries is actually defined by contract. The pension fund has a contract with the investment manager telling them how they will and will not vote. So I am not sure what one gains by telling them that they have done the job. A good voluntary system is operating and it would be better to wait and see whether it produces the results that we want rather than legislate in advance.
	Finally, on auditor liability, the relevant clauses seem to require monetary capping. Certainly that is the advice that I have received. I understand that the policy—which was agreed by the companies, investing bodies and the auditors themselves—was to be a system based on proportional liability. I am advised that the clauses as drafted will require the inclusion of a monetary cap. If that is the case, then I believe that the result will be an acceleration of cap amount to a very high level which would probably be affordable by only one or two accounting firms and would naturally lead to a very significant reduction in competition. I do not endorse that. I think that the matter can be put right by a relatively simple amendment in Committee.
	There are many other areas of detail to which we will wish to return in Committee. I say again, however, that we welcome the Bill. It is long overdue and the House has our assurance that we will endeavour in Committee and at subsequent stages of the Bill to help ensure that it provides the foundation in law for the future competitiveness and success of British companies.

Lord Clinton-Davis: My Lords, I am pleased to follow the noble Lord, Lord Sharman, with whom I have had the pleasure of conducting a certain amount of business in the past. I am also glad that the noble Lord, Lord Higgins, is here because some 22 years ago we crossed swords in the nicest possible way over the Companies Bill of the then Labour government. I am glad to say that there is not much fundamental difference between us on that score.
	As my noble friend the Minister has said, the Bill is incredibly long. I support what it contains, for the most part. Of course, unlike some of its predecessors, it is highly intelligible. It modernises company law and, like many others, I think that what has been achieved today is much overdue. I am sure that, for these good reasons, it will play a major role in attracting companies to this country. The Minister and all those responsible for advising him are to be congratulated on what has been accomplished, but it is a pity that company law is still to be found in so many different pieces of legislation.
	I am not entirely persuaded by my noble friend that there is not a case for consolidation. I think there is and the Committee will certainly wish to consider that point. After all, this Bill consolidates certain provisions already. It is not beyond the wit of man—and it would be welcomed by many practitioners—that we should seek some further consolidation in the nearer future than is envisaged. So, I await a single company law Bill.
	Although I generally support the aims of this Bill, almost inevitably I have some criticisms because it is so long. The Company Law Review carried out a fundamental review of company law in 1998. It concluded that companies should owe a primary duty to shareholders. But, assuredly—as the review recommended—in relation to that, companies must have regard to the interests of employees, to the communities in which the company operates, to the environment and to the company's stakeholders. In other words, it is necessary to strike a balance between varying interests, which. I am not entirely sure that this Bill accomplishes. Personally, I would have preferred an extension of a director's legal duties to employees and, indeed, to other stakeholders.
	Despite the reservations which I have articulated, the approach of this Bill is to be preferred to the present position. In parenthesis, do the Government propose another more basic review of company law? If so, do they have any intention of changing the way in which the boardroom goes about examining those matters which come before it
	Reference has been made to Part 10, Chapter 2, of the Bill. In my view, it would be desirable to detail the duties of directors in a more comprehensive way. Is that not the most appropriate way in which to ensure that directors behave in a way that is wholly consistent with the requirements that are imposed upon them? At the very least, if the Government refuse to go down that path, should there not be a non-statutory guide to directors' duties as has been suggested by the Law Society?
	I am somewhat puzzled about the phrase that directors must act,
	"so far as reasonably practicable",
	in carrying out their legal duties, in so far as employees and shareholders are concerned, as set out in Clause 156(3)(a) to (f). How will that work in practice? Does it mean that the views of employees and other stakeholders must be taken into account as a question of law? What in other words does it mean?
	Why are the Government repealing the legal need for quoted companies to produce an Operating and Financial Review—referred to as OFR? Will not that require some legislative amendments to the Bill, or require them to undertake another enactment? The Minister must surely know that many noble Lords who are likely to participate in this debate, and the TUC, are deeply concerned that the business review is not nearly as potent as the OFR in giving shareholders and stakeholders the insight needed to ensure that the company's operations will truly be in the interests of the company and the nation.
	Why are medium-sized companies exempt from the strict requirements that are imposed on larger companies with regard to non-financial information? Why should not all companies include non-financial information in their business review? Why should not relevant information on social and community issues be included in the business review, as required at present in the OFR?
	Under Part 31 of the Bill, the Government propose that after consultation a company law reform order may prescribe changes in company law. Will my noble friend outline more specifically than he has done the machinery as to how company law reform is to be undertaken? How can we be satisfied that public consultation and parliamentary observations will have been taken properly into account? Of course, there does need to be a fast-track procedure in this behalf but, equally, we must be satisfied that the caveats that I have mentioned are observed. In this connection, how do the Government intend to deal with the criticisms that have been launched on this procedure by the Delegated Powers and Regulatory Reform Committee? There is a real dilemma here. I prefer the way the Government have gone about this, but I think it is incumbent upon my noble friend to deal with that particular criticism.
	Finally, I will deal with political donations and expenditure, in Part 14 of the Bill. In general, I support these provisions, but I am concerned about the exact meaning of what is prescribed. The Law Society has iterated its anxieties in this connection. In particular, would the following represent political donations: corporate entertainment sponsored by companies offered to members of political parties; or politicians being paid for speaking at seminars and conferences?
	Although I am critical of certain aspects of the Bill, it is certainly a great improvement on what we have seen in the past. Despite my criticisms, the Government deserve our support.

Baroness Bottomley of Nettlestone: My Lords, company law concerns the creation and regulation of corporations. Too frequently debate focuses on the second of these objectives. The first is even more important. Few could quarrel with the stated objectives of the Bill. My noble friend Lord Hodgson eloquently made the points about the growing gap between the exciting rhetoric and the possible reality that might be developing. Nevertheless, I am well aware of the obligation to avoid controversy when first addressing your Lordships' House.
	The Government made a wise choice in introducing this lengthy and complex Bill in this House in the light of the detailed knowledge and distinguished experience of so many in this place. The immediate comments of the noble Lord, Lord Clinton-Davis, make the point all too clearly. I feel privileged to join your Lordships and I am deeply appreciative of the welcome I have received. As a Member for 21 years in the other place, I have long had great respect for the proceedings of your Lordships' Chamber in terms of the care and attention to detail and the generally constructive and non-partisan approach to legislation. If ever there was a really difficult and complex Bill to be introduced when in Government, I did all I could to ensure that it went to the Lords first.
	The growth of business is the driving force behind economic development and reform over recent centuries. As the Minister himself said, the creation of joint stock companies and the limitation of individual liability, together with the competence of many Scottish engineers, helped the accumulation and the use of capital. All this led to increasing prosperity in Britain and around the world. Only last week a Heritage Foundation report suggested that in economic terms the UK is the fifth most free country in the world, higher than the US.
	A major indicator of economic freedom, as the Minister said, is how easy it is to set up and administer companies. Overall, we have done well, and we do not want to go backwards. Starting and running a business is a component in providing opportunity for those coming to this country, including black and ethnic minorities. They can become successful, contributing economically and socially to society. Analysis of the recent riots in France suggests that excessive obstacles in setting up small businesses there prevent enterprising migrants developing a similar stake in the community.
	I have long been aware of the need to create wealth if we are to fund welfare. Thirty-five years ago, as an idealistic young social scientist working for Frank Field—now a Member in another place—on low-income families, I produced my first report for the Guardian, and published a CPAG pamphlet. It was sent by my father, John Garnett, then leading the Industrial Society, to Sir Keith Joseph, a distinguished former Member of this House. I was summoned to see him, in a state of anxiety similar to that in which I am addressing your Lordships today, and he firmly reminded me that it is so much easier to divide the cake up than to bake it in the first place. There are many socially-reforming measures on which I hope to make a contribution in this House. The only way to realise these ambitions is to pay equal attention to the wealth and employment-creating capacity of our nation. So let me speak more about the Bill.
	We have some of the best corporate governance in the world and we must not let a rigid legislative approach compromise the pragmatism and flexibility that has helped us prosper. Ours is a principle rather than a rules-based system. Excessive regulation leads to additional administration. Directors become policemen and box-tickers, rather than strategists contributing to successful wealth-creating companies. As the Minister in his own maiden speech said, the success of business depends on,
	"enterprise, vision and skills . . . Government cannot provide a substitute for that".—[Official Report, 12/1/98; col. 863.]
	Legislation and regulation cannot stop company fraud. We should develop mechanisms to ensure that alarm bells ring earlier. We must train people to recognise the signs. We must empower people to be independent and courageous in their views. We must encourage critical friends. Independent non-executive directors can play a key role. I was pleased that the Minister highlighted the work of Sir Derek Higgs in his recent report.
	Before going any further let me declare my own interests as set out in the Register. I am an executive director of Odgers Ray & Berndtson, heading the board practice and so involved on a day-to-day basis with the identification and selection of directors to serve on all manner of bodies. I also sit on a number of both commercial and charitable boards, nationally and internationally.
	Corporate Britain needs talented directors, both executive and non-executive. But there are already ominous warning signs that the liabilities and constraints involved are preventing some of the most talented from taking up the challenge. The danger of this legislation is that non-executive directors, contrary, I am sure, to the intentions of the Government, will be further deterred or will act defensively rather than independently and, where necessary, courageously.
	Patience Wheatcroft, the Times business and city editor, predicted that,
	"2006 could be the year when quoted companies find that there are simply not enough directors to go round. The rewards do not compensate for the risks involved and people of the right calibre will not volunteer".
	She is not alone. There are indications that sought-after individuals are reluctant to join a board, preferring to serve in an advisory or consultative fashion. FTSE 100 companies will be fine with their strong brands, but it is often the smaller businesses, which may need the NED contribution more, that will be vulnerable. It is welcome that the Government are calling for greater diversity in the board room, but these measures may deter precisely those potential NEDs they most wish to attract.
	Extending the provisions for the indemnification of directors is obviously a welcome step, and those who know, as I know well, Jennie Page, who has been so scarred by recent episodes with Equitable Life, will appreciate that this may take a step forward. She is a public servant of great ability and integrity. Recently she said:
	"It's very difficult to think the circumstances of non-executives are well-defined or well-protected in this day and age . . . If a climate of litigation by boards against their predecessors becomes a generality, you can see how being a non-executive could be a very dangerous thing to be".
	The noble Lords, Lord Sharman and Lord Hodgson, have already spoken about the dangers envisaged in the analysis of directors' duties contained in the Bill. There is a real concern that the statutory code could be unworkable and counterproductive. It may make more work for those from the previous profession of the noble Lord, Lord Clinton-Davis, but directors may feel that they will not be able to move without consulting lawyers as to whether they have complied with the legislation. The strength of the present flexible arrangements is that they are adaptable, flexible and allow for exception—comply or explain.
	The point about the measures being "so far as reasonably practical" has been well-covered. The previous wording of "where relevant" seems a much stronger argument. Much may be practical, but not relevant. To have to do something that is practical but not relevant on risk-based proportionality principles would be a significant burden and a diversion of energy. Similarly, the provisions relating to the avoidance of conflict of interest are complex to navigate. It will frequently be far from clear to directors whether a conflict exists.
	In helping directors to resolve all these matters, the first port of call in most circumstances is the company secretary. I am with those who argue most strongly that we should hold on to company secretaries wherever possible. Very often they are the guardians of the corporate governance structure. They are pivotal in influencing and monitoring the governance of a company, advising on new developments and compliance with codes of practice, regulation and corporate law. They ensure the follow-up of board decisions. They are a primary source of information for executive directors and shareholders alike, and I very much hope that the Minister will look again at this matter.
	In recent months, Sir Bryan Nicholson has handled the revised, combined code with great skill and effectiveness. I welcome the Minister's reassurances about the FRC, but I am concerned about the moves in Clause 861 to make the FSA, rather than the FRC, the competent authority to make rules about corporate governance. It may be that that is connected with complying with European legislation, but I hope the Minister will agree that the strength of the UK's corporate governance regime, for which the FRC is responsible, is its flexibility and the degree to which it commands support in the business and investor communities, and that is precisely because it operates on a non-statutory basis. Can he give undertakings that powers will be taken under this clause only if there is full consultation in advance? The rules of the FSA should be used only as a last resort.
	Perhaps I may turn briefly to the subject of charitable enterprises. Like many others in this House, I serve on a number of charitable bodies: the Prince of Wales International Business Leaders Forum, the Ditchley Foundation and, closer to home, the Industry and Parliament Trust. These are charitable companies limited by guarantee. Something like 20,000 charities on the register have the same structure and, although there is some mention of them in the Bill, particularly in regard to the exemption from audit clauses, there are a number of contradictions elsewhere. In particular, the rules on conflicts of interest and duty may possibly have a damaging effect on charities. The impression is given that those rules have been influenced by the assumption that directors are paid, whereas of course with charities that is the exception rather than the norm. After the care and deliberation that this House has given to the Charities Bill, I suggest to the Minister that there needs to be further consideration of the way in which this latest legislation will impact if it is not to create a two-tier system of trustees on charities and possibly open charities to some unfortunate developments.
	After 22 years in another place, although only a few months in your Lordships' House, I am well aware that the best legislative intentions can easily result in unintended and damaging consequences in practice. I recognise the formidable degree of consultation that has been invested in the preparation of this Bill. I have every confidence that the Minister, in his characteristic manner, will give detailed consideration to the serious concerns raised by myself and many others in this debate.

Lord Borrie: My Lords, from the government Benches, I add to the welcome and congratulations offered by the noble Viscount to the noble Baroness, Lady Bottomley of Nettlestone, on her maiden speech, which we so much enjoyed. We enjoyed her speech, and we look forward to enjoying other speeches on other subjects in the future.
	This Labour Government have often been accused of being anti-small business. There is plenty of evidence in numerous provisions of this Bill which proves otherwise. The Company Law Review was initiated by this Government in 1998. Although, as the Minister has said, many organisations and individuals have contributed along the road in consultation to the final outcome, it can be said that the chief driver behind the Bill are the Government and that its final construction is their work.
	However, it has already been expressed by the Government and elsewhere, that there will be some disappointment in the country at the failure of the Government, after eight years, to produce a fully consolidated measure that brings together the totality of company law in one piece of legislation. I will be glad if the Minister will comment on this, because sometimes I think that the time is never ripe for halting change and setting out all the existing law conveniently in a readily accessible single statute. Only this week, when we are discussing this partially consolidated Bill, the EU Commission, which initiates a number of changes nowadays in a way that was not the case years ago, has tabled interesting proposals for enhancing the rights of cross-border shareholders. At some time, somewhere along the line, they may need to be put into effect in the UK.
	I started by saying that the Bill is pro-small business. There are many welcome provisions to that effect: for example, allowing private companies to do without the formality of AGMs and making it easier for shareholder decisions to be taken by way of written resolutions instead of meetings. It will also enable private companies to reduce their share capital without the need for court approval. On the latter point, the Government may be wise to respond to the Law Society's point that that power may be undermined by requiring a reduction in capital—which is, after all, a key step in a merger between companies—to be dependent on the formality of requiring documentation. The Law Society also reasonably queries whether the deregulation of private companies is being taken far enough by the Bill and asks whether the Government intend to deregulate the payment of dividends by private companies, as it has, apparently, contemplated doing. Will the Minister comment on the Government's intentions on that?
	I am a former non-executive director of various trading companies, particularly in banking and the media. As such, I was conscious of, and properly instructed by company secretaries about, the manifold legal obligations and duties of a director. In so far as the Bill clarifies the duties of a director, I naturally welcome the greater clarity that is the aim of Part 10 of the Bill. I do not know if the Law Society's pessimism about whether Part 10 is likely to achieve the aim of clarity and accessibility is justified. Certainly, I would welcome a statement from the Minister on his view of how far the common law on a director's duty of care will continue to operate. I do not think I can be the only person who does not find Clause 154(4) easy to interpret.
	As I said, I have been a non-executive director, and I have never been happy with the traditional strict view that non-executive directors basically have the same responsibilities as the managing director, the finance director and the other executive directors. I strongly believe in the value to a company of the outside knowledge and experience that non-executives can bring to the boardroom—the maiden speech of the noble Baroness, Lady Bottomley, took this view, and she has great experience of recruiting non-executive directors—and in their negative value of not being closely tied in to the ethos of the full-time directors and managers.
	As a result of Part 10 of the Bill, is the Minister concerned with the possibility that the noble Baroness, Lady Bottomley, mentioned, that fewer people will be willing to become non-executive directors in future? Of course I mean useful, valuable non-executive directors. There is the other point of view, that some people take on too many non-executive directors. It sometimes beggars belief that one person can perform diligently and conscientiously all the manifold duties of being a director of numerous companies. That is the other extreme. Yet it would be a pity if new conflict of interest rules or other obligations make the taking of more than one or two directorships at a time near impossible.
	I look forward with interest to the Grand Committee discussion on takeovers and mergers. So far as they may have adverse effects on competition, the Enterprise Act 2002 and the substantial lessening of competition test applied by the Office of Fair Trading or the Competition Commission are in place, and are accepted as efficacious. This Bill is concerned with the other aspect of takeovers—the effects on the rights of shareholders. It seeks, as the Minister indicated, to implement the EU directive on takeover bids and to put on a statutory basis the rules which protect minority shareholders and other rules which have been governed in the UK since 1968 by the self-regulatory code on takeovers and mergers. I am with the noble Lord, Lord Hodgson, when he says that there is probably considerable regret at the passing of a successful and much-praised self-regulatory system. Yet the Government deserve praise for seeking to preserve as much of the old system as possible, and in particular—an important point—to deter parties from tactical and abusive use of litigation to hold up, postpone and delay takeover situations, the effect of which may be desirable. I understand that Article 4(6) of the directive is key to a continuation of the UK principle established by our courts in the 1987 Datafin case, where courts may refuse to hear legal proceedings relating to a bid and obviously designed to hold up and delay what is happening.
	This is not the first time the Government has helpfully sought to preserve the essentials of an effective UK self-regulatory system when having to put it within a statutory framework to comply with EU obligations. Misleading advertising is a field I know well, and the subtlety but effectiveness of the UK approach to implementation of an EU directive has proved fair, practical and effective. In our debates in Grand Committee on Part 22, I look forward to hearing the Government expound their proposals to continue the autonomy and effective and fair working of the City takeover panel.

Baroness Tonge: My Lords, perhaps I may be the first from these Benches to welcome the noble Baroness, Lady Bottomley of Nettlestone, to the House and congratulate her on her maiden speech. It is good to see her here.
	I rise with a certain amount of trepidation. I was brought up in a professional family and was taught early on that most business is dodgy and big business is probably evil. Needless to say, I have no interests to declare—I must say that before I go on. When I became international development spokesman for my party in another place, the feelings that I had been brought up with were quickly reinforced by bombardment from non-governmental organisations telling me of the misdeeds of multinational companies, some of them British, in developing countries.
	However, I soon began to realise that big business in Britain in the 19th century led to our social advance and better education and healthcare. It was big business that did that for our country. Likewise, in developing countries, it should be big business—multinational companies, our own big companies, whatever we like to call them—that is the engine for development. It is that issue that I wish to address.
	Large companies are already realising that they must behave in a sustainable way and that it is ultimately in their interest to protect the environment and improve the lives of the workforce. In recent years, an enormous amount of leaflets and brochures, have come from big companies telling us of their social responsibility and how they have left the environment exactly as it was before they started their excavations, or whatever. So things are happening, but far too slowly.
	The Prime Minister, at the World Summit on Sustainable Development way back in 2002, said that we must actively promote corporate responsibility and accountability through, among other means, appropriate national regulations. As my noble friend Lord Sharman and others have mentioned, why, then, have the Government taken a backward step by abolishing the requirement for companies to produce an Operating and Financial Review? That would have gone a long way to ensure transparency and accountability among UK companies. As my noble friend said, they are already preparing those reviews.
	Instead, the Bill places too much reliance on the concept of "enlightened shareholder value", which is a trifle vague, to put it mildly. Presumably, it puts the onus on shareholders to turn up to every meeting and grill directors on the sustainability of their operations and whether they are protecting workers and the environment. Unless we all become ethical consumers and every shareholder behaves like my noble friend Lord Avebury, who is renowned for owning one share and turning up to shareholder meetings to make a stink on one issue or another—and we will not, of course—change will be very slow.
	The Organisation for Economic Co-operation and Development has laid down very good ethical guidelines on how companies should behave. The World Bank has also declared that voluntary standards do not work. The regulator for our companies should be our Government and the rules of practice should be written in the Bill.
	I confess that I know little about business except that it must be competitive and must not have too much red tape, but I am reliably informed that there are countries with high levels of business regulation, such as Denmark, Sweden and Finland, which are doing very nicely thank you and are very competitive indeed.
	I will mention a brief case study. Some time ago, I watched a brilliant documentary film called "Mangetout". It was about the activities of a supermarket chain in this country. Before the Minister pales, I will add that it was Tesco. It was growing mangetout for consumption in this country. We saw the wonderful conditions in which the workers work and the wonderful uniforms that they had. We saw wonderful footage of mainly women walking up and down the rows of mangetout plants singing, and I translate:
	"Up the hillside, down the valley
	Tesco is our greatest friend".
	That was repeated over and over as they went happily to their work to bring us the mangetout that we so crave.
	I have very sad news: there has been a recent report that that idyll no longer exists. In South Africa, where that company has pushed down prices paid to the farmers and demanded tougher conditions, the rights of thousands of fruit pickers have been eroded. Women workers report dangerous exposure to pesticides, no protective clothing and poverty wages for long, long hours of work. Yet, in April 2005, Tesco announced record annual profits of £2 billion. That company is a good one. It has created voluntary codes of conduct for its fruit suppliers, focusing on technical issues such as pesticide spraying. It supports the Ethical Trading Initiative on Minimum Labour Standards. It is committed to social responsibility. Despite all that, we have this terrible report of the abuse of workers in South Africa.
	The voluntary approach does not work. It needs underpinning by minimum legal standards applied at national and international level. The Bill must be used to do that for our companies. We must not miss the opportunity.
	Amendments would be welcome in the following areas. I leave it to my very experienced colleagues to work out the detail, but there must be a positive duty on directors of companies to minimise any negative impact due to their operations in other countries. It must be extended to national and foreign associate companies and subsidiaries. The reporting requirements on social and environmental impact must be strengthened in the business review. It cannot be just financial matters that are reported on. When all else fails, there must be protection under UK law for affected communities abroad so that they can seek compensation for any human rights or environmental abuses committed by our companies.
	Our large companies—all multinational companies—have huge power and resources and can be the engine for development all over the world. Let us ensure in the Bill that the operations of our companies are sustainable and responsible.

Lord Judd: My Lords, I declare an interest as a non-executive director and a charity trustee of the kind so thoughtfully referred to by the noble Baroness, Lady Bottomley, in her remarkably telling maiden speech. As the noble Baroness emphasised, governance and regulation should indeed be about effectiveness, and the UK obviously needs a thriving, effective private sector as the basis for our future economic, cultural and social wellbeing. But governance should also be about responsibility. In this context, the intention and drive behind the Bill are to be welcomed.
	Two-thirds of world trade is undertaken by multinational corporations. They have a very significant influence on the social, human and environmental experiences and rights of many millions of people both in the developed and developing countries. The Bill will inevitably be judged by many by the degree to which it successfully addresses the power and responsibility of UK companies operating in the global economy, the impact on employees, communities and the environment, not only here in the United Kingdom but, at least as importantly, overseas as well.
	The Bill underlines the primary duty of directors to deliver financial benefits to shareholders. In Clause 156 it also spells out clearly that, in discharging their duties, directors should have regard to the interests of their employees and the impact of the company's activities on the community and environment. However, it does not seem to spell out equally clearly what directors must do when their social duties conflict with the primary duty to promote the company for the benefit of its members.
	The Government have an enviable reputation in their tangible commitment to the poor of the world. The work of DfID is exemplary and the Chancellor has been a powerful pace-setter with his personal conviction. The Government have also declared their intention to give priority to the challenges of the environment. It would, therefore, be good if my noble friend, when responding to the debate, could clarify precisely what is the policy of the Government towards any potential conflict of interest on the part of directors in these spheres.
	My noble friend has stressed that the Government have settled for what is called "enlightened shareholder value". This assumes that good social and environmental practices are always compatible with—and, indeed, good for—profitability. This is a good philosophy. I subscribe to it. Unfortunately, it is not yet widely enough reflected or understood in the real world, where short-term opportunism is too often the order of the day. As Friends of the Earth, ActionAid, Oxfam, Christian Aid, Amnesty International and others, with all their front line expertise, have argued, there are altogether too many indications that the voluntary approach is not working. As the noble Baroness, Lady Tonge, reminded us, this has been acknowledged both by the World Bank and OECD.
	There are three specific issues on which the reassurance of my noble friend would be encouraging. First, is it not possible to insist in the Bill that, rather than just having regard to the impact on workers, communities and the environment, directors should have a positive duty to take reasonable steps to minimise negative impacts? Should this duty not also extend to the operation of foreign associates, subsidiaries and sub-contractors of UK companies?
	Secondly, just why was the Operating and Financial Review abolished? It was on course to ensure improvements in the quality and transparency of company reporting to stakeholders. Can the reporting requirements of OFR really not be incorporated into the provisions of its successor, the Business Review? This would mean that all UK companies would be required to disclose information on their environmental and social impacts alongside their annual financial reports.
	Thirdly, as the noble Baroness, Lady Tonge, has argued, in their imaginative approach to global justice, do the Government not believe that it is essential that there should be some protection under UK law for affected communities abroad so that they are able to seek compensation for human rights and environmental abuses resulting from the activities of UK companies, their overseas subsidiaries, associates and sub-contractors? Is this not fundamental to a commitment to justice? If this Bill is not the appropriate vehicle for such protection, what other arrangements do the Government favour? This really is no longer a matter that can be left in the air.
	Let me take just one illustration. Since the 1980s, in the Niger Delta in Nigeria, to say the least, it is clear that there is room for considerable concern about the gap between the published corporate responsibility policies and ethos of major companies and their continuing direct and indirect performance on the ground. Some of the disturbing issues from this part of Africa are still caught up in legal proceedings, but at this stage it can be said that despite the finding of the Federal High Court of Nigeria last November that gas flaring violates guaranteed constitutional rights to life and dignity and that it must stop, the gas flaring, with all its waste, environmental damage, deafening noise, severely adverse health consequences and pollution for the communities in the vicinity of where it happens, continues. Elsewhere in Nigeria, failure to replace aging pipeline infrastructure has led to repeated oil spills and associated environmental destruction, including the pollution of water supplies and the loss of mangroves, fish ponds and aquatic life.
	In contrast to the declared and increasingly vaunted policies on social and environmental matters of the companies concerned, both British and foreign, the realities are those that I have just described when it comes to what is happening on the ground. A sad situation becomes still more ominous with the reports of harassment of communities which may be in the path of business projects in places such as Oganiland.
	Enhancing the duty of directors as set down in the Bill to include a duty of care towards communities and environments is an urgent necessity. I cannot believe that my noble friend would not agree. I hope that he will make this clear when he winds up today. I cannot believe that those in companies such as Shell, who have produced their impressive policy texts on corporate social responsibility in these matters, would not welcome such a provision in helping to turn rhetoric and intellectual conviction into front-line action.
	We need a healthy, vigorous private sector. We also seek a sustainable, stable, secure and safer world. Environmental threats are the biggest single danger facing humanity. They are also central to more immediate issues of political stability. Extremism and terrorism, which so pre-occupy us, breed on alienation, deprivation, suffering, exclusion and injustice. It is no exaggeration to say that in this Bill we have an ideal opportunity to make a positive, imaginative and muscular contribution to the sustainable, safer world we all seek. It would be sad were we in an otherwise highly commendable Bill to miss that opportunity.

Lord Patten: My Lords, while I was very sorry to miss the opening passages of the Minister's speech—for which I apologise—I know that we will have many more opportunities in the coming weeks and months to hear his tones as the Bill unfolds.
	My noble friend Lord Freeman rightly referred to the Minister as using Stakhanovite endeavours to get so much legislation through the House. I believe that a subsequent scholarship by historians of the Soviet era proves that Stakhanov never existed except as a figment of the propagandists' ideas of productivity. So, in future, I shall delete the word "Stakhanovite" and think "Sainsburyite." In what I have to say I must declare all my interests as a non-executive director, as set out in our Register of Interests. I think it is proper on this occasion, as I intend to speak solely about directors' duties, that I also declare the interests of my wife, who as non-executive chairman of Brixton plc and a non-executive director of Great Universal Stores plc, Bradford and Bingley plc and, from 1 February, Marks and Spencer plc, is, as your Lordships will realise, a far more distinguished company director than I could ever assume to be. I assure your Lordships that in the Patten household we operate a "Chinese duvet" policy on corporate matters.
	I have three reflections and one main point to make. The first is to say that the Bill rekindles the question I have often asked in this place: just what is the DTI for? In this period of the "Bonfire of the Ideologies," as we are told by leaders and would-be leaders of the three main parties, perhaps one of the first pieces of tri-partisan agreement can be dispensing with the services of the DTI. I realise that declarations in Explanatory Notes, or for that matter in the preamble to a Bill such as this, have no statutory weight, but when made they set the tone. There is no specific mention or reference in either to the importance of the corporate sector or of corporate enterprise. The noble Lord, Lord Judd, referred to the importance of corporate enterprise in his remarks on ethical and environmental matters, with which I largely agreed, although I do not think he has fully recognised all the efforts made on these fronts by UK corporates in recent years. In particular, I wonder whether the Minister's colleagues in the Treasury have fully grasped the extra regulatory burdens placed on the corporate sector by this Bill, and that the health of this sector, with its critical revenue raising capabilities, may be inhibited.
	My second reflection is that we do need, of course, to ensure the responsible business behaviour of companies in this country. I hope that will always characterise the activities of modern British business. I do not believe that trying to do this purely by regulation and legislation is the best route. The UK corporate sector has, with very few exceptions, in recent decades compared wonderfully to those of the United States, France, Germany and, in particular, Italy, given their multiple scandals. I think it has performed in an exemplary way and the environmental record of UK corporates has, I believe, been exceptionally good compared to worldwide standards. That is something my party rightly takes very seriously.
	My third reflection, as I intend to concentrate solely on the provisions of this Bill relating to directors' duties, is that running a company is difficult. I think there should be recognition of that fact. It is challenging; it calls for judgment of what is best and the balancing of competing—sometimes unendurably competing—pressures in order to find the right way forward. In many ways exactly the same challenges that face Ministers, face directors in the boardroom. So I do not think that the introduction of a new statutory code for directors in this respect is wise. I admire, as the noble Lord, Lord Sharman, I think said in his earlier speech, the consistently well argued opposition of the Law Society to some of the provisions in Part 10 of the Bill. The statutory code approach is, I think, inflexible, confusing, likely to lead to increased bureaucracy, to load more cost on to companies and will soon date. It is not too late for the Government to think again, even at this late stage, and to substitute a voluntary code structure for the statutory code proposed.
	That is enough reflection. I would now like to turn to my main point. This concerns the innocent-sounding duty of company directors—executive and non-executive alike, these being the same in law—to "promote the success of the company for the benefit of its members." I as yet have no idea what the word "success" means in this context. I hope the Minister can help us on this point in his winding-up, as he might also by defining the word "members." This is no Committee stage point; it goes right to the very heart of the Bill. Indeed, the Minister raised it in his opening speech. An extremely suspicious interpretation of these provisions—and far be it from me ever to fall into being in any way a suspicious or extreme person—would be that these duties are some brand spanking new insertion, little by little, under the radar screen, of the widest possible interpretation of stakeholder duties or stakeholder interests, so-called, into boardroom decisions. The very word "stakeholders" can very soon mutate into "the whole population of the country."
	At present, the concept of the company as an entity in whose interests directors must act is well understood. The purposes of the new statutory code are, as I have said, unclear, and will, I think, add regulatory burdens and costs rather than savings. In the face of the uncertainties the Bill introduces, I think directors will have to look very hard at the threat that the courts may intervene. There are objective tests on the face of the Bill which would, I think, at best encourage and, at worst, sometimes require the courts to intervene in matters previously and properly left to the directors and board. Their business judgment—and that is what the men and women who staff our boardrooms are called on to deploy, day in and day out—may well be inhibited. Suppose a company for sound business reasons decides to reduce its workforce. That could put it at odds with its "members'" interests, when we find out what "members" actually means. What about the position of joint-venture companies? I think this requires a lot of forensic examination?
	Perhaps more pointedly, where does the Bill leave directors? Some of my noble friends and some noble Lords on the other side of the House may have been in the position of facing a hostile takeover bid or of putting themselves on to the market and the company being in receipt of competing bids. Under present practice it is possible to decide not to accept the highest bid if this is judged not to be in the interests of the company as a separate entity. The likely circumstances are too well-known to bear elaboration, but to take just one example, a bidder might make a highly leveraged bid, which could lead, in the sitting directors' views, to levels of debt that could not reasonably be serviced by the present cash flow or future earnings, thereby threatening to diminish pension benefits or to make the sale of assets necessary.
	All this uncertainty will certainly lead to two things; out of uncertainty will come certainty. First, it will lead to increased corporate costs, as levels of directors' and officers' insurance are bound to shoot up as directors look, quite properly, to dealing with the sort of threats—referred to by my noble friend Lady Bottomley—non-executive directors are so unfairly attacked by. Secondly, and I must choose my words carefully, because there are one or two people present who have worked with professional services firms in the past, I think there will be a whole new and highly profitable advisory industry as professional services firms and consultancies gear up to advise boards on their new frightening responsibilities, with all the slowing down of decision-taking and unnecessary box-ticking that will entail. There will be a lot of new business in the offing for professional service companies and consultancies.
	I should like to end on this note: exactly what is the nuisance that the statutory code is trying to deal with? Perhaps the Minister, in his normal Stakhanovite—or now "Sainsburyite"—way can give us an example of the type of nuisance that will be dealt with by this statutory code. How, in a period when we are entering a new phase of slow growth in the United Kingdom, no better than the European average and with a growing deficit, are the sort of increasing burdens and costs that are being placed on business going to help the corporate sector to do the sort of things that the noble Lord, Lord Judd, in his speech was seeking for them to do?

Baroness Murphy: My Lords, I should say at the outset that I do not include myself in that galaxy of talents in company law reform to which the noble Lord, Lord Hodgson, referred earlier. Indeed, as a psychiatrist, I do not know if I can offer my services to the Minister only to shrink the Bill in some way. I want to speak as a member of the UK Shareholders' Association; I should say at the outset that I am a close relative of one of the directors of that association and have read their views on this Bill with interest.
	I want to speak to a point already raised by the noble Lord, Lord Hodgson, about Part 9 from the point of view of those 10 million or so people in the UK who have put their precious savings into PEPs and ISAs, boldly joining the new shareholding democracy, without realising—and I include myself in this—that they enjoy none of the rights of ordinary registered shareholders. The use of nominee accounts for these types of investments has effectively disenfranchised investors. I contrast this with the hold style of small personal investments 25 years ago, when a nest egg bought a handful of shares in a blue-chip company or one's favourite retailer, and then you had the fun every morning of watching your stocks go up and down. If you wished, you could go to the AGM and, with a bit of luck, you got a free lunch. Now, though, no less than 40 per cent of all shareholdings in this country are held in nominee accounts. That is a staggeringly high percentage of holdings, and people have no say in what happens to those investments.
	In the Bill the Government acknowledge the desirability of nominee account shareholders being properly informed about their investments and support them being able to participate in company meetings, request and vote on resolutions, and so on. But, in practice, the Bill is unlikely to make any substantial difference to the majority of those account holders.
	First, the Bill is enabling, not obligatory. It relies on the support of companies to change their articles to support enfranchisement of nominee shareholders, but it is clear that companies probably will not want either the hassle of change or the cost of implementing these rights, even though, as the Minister said, costs may go down substantially if £250 million a year is saved through other parts of the Bill. Although the Bill provides reserve powers in Clause 137 to enable the Secretary of State to compel companies to provide information, there are no powers to compel companies to involve shareholders in company business. It is not clear under what circumstances these reserve powers would be used, nor how the intermediate tier of stockbrokers and financial advisers will be persuaded to collaborate with such a system. If the intermediate purchasers and operators do not want to provide the information, then, with the best will in the world, a voluntary system will not work.
	Companies will differ in their decisions about nominee shareholder enfranchisement; information to the shareholders will often be varied and confusing. Can the Minister outline how there could be more clarity and a bolder structure in the shareholders' interests, to which I believe the Government have committed themselves?
	Of course, many shareholders will have no desire to immerse themselves in the detail and should not be burdened with information if they do not want to be. But if they do, their rights should be there on request. The USA is able to provide such a system of shareholder enfranchisement in these cases, through use of a third single party account, and I see no reason why we cannot do this. Perhaps the Minister can explain why.
	Part 8 sets out the public nature of a company's register and a company's right to apply to a court to refuse access to the register if it believes that access is not for a proper purpose. What exactly might "not proper" include? There is a concern that it might include denying access to the register of a person critical of the board's decision-making who wants to advertise his criticisms to others on the register. Or is that not the case?
	Most of the Bill promotes the Government's commitment to clarity and openness in business, and it is to be welcomed. However, I would like the Government to be a little less supine about the rights of the small but numerous investors whose savings are so crucial to the overall pattern of investment in this country.

Viscount Trenchard: My Lords, I am grateful to the Minister for introducing the debate. The Bill represents the culmination of seven years' work, and we welcome its introduction to your Lordships' House.
	I join other noble Lords in congratulating my noble friend Lady Bottomley of Nettlestone on her most interesting and constructive maiden speech. We are fortunate indeed to have her among us in your Lordships' House and I look forward to her future contributions, from which we will all greatly benefit.
	I would have preferred the Bill to have been called the companies Bill, and have eventually become the Companies Act 2006, in that it amends and restates much of the Companies Act 1985. After all, do not most Bills reform something? I tend to agree with my noble friend Lord Hodgson and the noble Lord, Lord Sharman, that it might have been better to have had one new consolidated Companies Act.
	There is much in the Bill that is welcomed by business practitioners. The provisions to make it easier to set up and run a company will be appreciated by proprietors of SMEs which account for the vast majority of British businesses. However, I was particularly struck by one point made in the excellent speech of my noble friend Lady Bottomley. She regretted the abolition of the requirement to maintain a company secretary. I wholly agree with her and cannot believe that this will help any company, small or large. After all, somebody will still have to do the company secretary's job, and it is better to be clear who that person is.
	I will not repeat all the excellent points that other noble Lords have made, but I would like to mention a small number of areas where I believe the Bill can be improved. I strongly agree with the United Kingdom Shareholders' Association that incurring substantial start-up costs in preparation to trade under a particular name should not be a sufficient ground to lay aside the objection of an existing user of an identical or substantially similar name. After all, in the age of the Internet, it is much easier to check in advance whether a particular business name is in use.
	I also agree with UKSA that the grounds on which a court may properly refuse a request from a non-shareholder for a copy of the shareholders' register should be included in Clause 116. In the case of a publicly traded company, it is not difficult in any event to become a shareholder, and it is not easy for a company to prevent improper use of its own shareholders' register by a person who has purchased a few shares purely to obtain the register. Would it not be simpler and easier to make a distinction here between public and private companies? Private companies should arguably not be compelled to disclose their shareholders' register to non-members, whereas there is surely an argument that the shareholders' register of a public company should be in the public domain in any event.
	As the noble Baroness, Lady Murphy, correctly stated, there is a widespread feeling that the Bill's provisions on beneficial shareholder enfranchisement do not go far enough. I agree that indirect shareholders who wish to participate actively in the governance of all the companies in which they invest should be given the legal right to do so. It may be true that the vast majority of holders of unit trusts and investors in collective investment schemes will not want to be bothered with the huge amount of bureaucracy inevitably involved. Most of them will be content to cede their voting rights as shareholders to the fund manager concerned. Perhaps purchasers of unit trusts and the like could be asked whether they wish to opt in or opt out of their right to be involved in corporate democracy at the point of sale.
	If fund managers are to be compelled to procure the distribution in hard copy of annual and interim reports to all indirect shareholders, irrespective of whether they wish to receive them, I guarantee that more than 90 per cent of such voluminous material will end up in the dustbin unread. That is likely even in the case of companies which have opted to provide summary financial statements under Clause 402. Nevertheless, the rights of those beneficial shareholders who wish to participate must be respected.
	I am attracted by the Canadian system, whereby custodians invite beneficial shareholders to opt into the governance and information systems. Beneficial shareholders who have opted out will be asked every year whether they still wish to opt out and, whether they have or have not, they are in any case required to be notified of matters concerning extraordinary general meetings. I think it is clearly wrong to leave the question of whether and to what extent indirect shareholders are enfranchised to the discretion of individual companies. The Government's proposals to do with that issue are woefully inadequate, in spite of the sensible position that had been adopted in the White Paper.
	I should declare my interests, as disclosed in the Register of Interests, as a director of a number of companies and as chairman of the board of trustees of a charity. I am also concerned that the extension of the duties of directors will not do anything to encourage more well qualified individuals to take on non-executive directorships. The provisions of Clause 156 are likely to lead to an increase in lawsuits against directors by those who think, for example, that a particular company's operations do not at all times and in all respects have a wholly beneficial impact on the community and the environment. I think it is wholly superfluous to write into law a requirement that a director must have regard to the need to foster the company's business relationships with suppliers, customers and others.
	That type of thing is common sense, as is the desirability of a company to maintain a reputation for high standards of business conduct. My noble friend Lord Patten made some very sensible comments on this clause. Surely the Association of Chartered Certified Accountants is correct in its opinion that it would be unrealistic to expect directors in any set of given circumstances to adopt positive stances in respect of all prescribed factors at the same time and that the ultimate arbiter of whether directors have made wise decisions should be the company members themselves. The section on derivative claims and actions by members is not clear enough and the inclusion of this concept in the Bill is likely to encourage US-style class actions in the UK.
	Clause 862 gives the Financial Services Authority power to make rules concerning community obligations on corporate governance for issuers on a regulated market. Is the CBI not right in its submission that it is not appropriate to widen the FSA's powers in this direction? This is another reason why it is unwise to muddy the waters concerning directors' clear responsibilities to shareholders with too much codification of responsibilities to the community and to other stakeholders.
	Some of the language in the Bill strikes me as odd. "Oversea companies", covered in Part 25, is a case in point. It sounds strange. Why can we not have "overseas companies", especially as Clause 126 in Part 8 allows us "overseas branch registers"?
	Lastly, I agree with the noble Viscount, Lord Bledisloe, and my noble friend Lord Freeman, who so eloquently explained that Part 31, which gives the Secretary of State the powers to change anything in the Bill through secondary legislation, should be removed. Companies need certainty and stability. If the Act can be altered at will—substantially altered—there seems to be little point in your Lordships' working to improve the Bill to give British and foreign companies the stable legal framework that they need to continue to run profitable businesses and to provide productive employment. For this and for all the other powerful reasons put forward by the noble Viscount and by my noble friend, I earnestly hope that the Government will think again on this point. In principle, there is much that is good in this Bill, but I hope that when it leaves your Lordships' House, it will be a Bill of which we can all be proud. It has been a privilege to speak in this debate and I look forward to the speeches of other noble Lords.

Lord Lea of Crondall: My Lords, first, I echo the remarks made by many noble Lords in acknowledging the impressive maiden speech of the noble Baroness, Lady Bottomley of Nettlestone, who is in her place. I have been acquainted with her in the Farnham area on the Surrey/Hampshire border for more than 20 years and I very much appreciated, for example, her support in the 1980s in my role as chairman of Farnham Roads Action regarding the construction of the A331 Blackwater Valley route. That was at the time that a certain Peter Bottomley was Minister for Roads. I think that I can now say that after 20 years. The road had huge benefits for Farnham and all the surrounding areas. I am sure that the noble Baroness will agree that the road has considerably enhanced the local environment.
	I was also interested to hear about the upbringing of the noble Baroness, Lady Tonge. She reflected certain prejudices along the lines that companies are not made in heaven. Having spent 35 years as a trade union official, I have similar feelings. But the question is where do we go from here? We have to balance a number of considerations. That is why I welcome the fact that directors are codified for the first time in the Bill. They have to act in the interests of shareholders, but pay regard to the longer term and the interests of employees, suppliers, consumers and the environment. I hope that my noble friend the Minister will not downplay the significance of that. I will return to that point at the end of my remarks.
	How does that codification square with the dictum that "companies exist for their members"? We are all aware of the rules of the Stock Exchange, but, as has just been said, in the era of hedge funds, regarding so-called members of the company who can often be speculative owners, in and out in a few weeks, when their shark-like activity has from their point of view driven the share price first down and then up again, do these members have long-term interest in the company? Clearly not. We must get behind the rhetoric.
	The noble Lord, Lord Hodgson, in an interesting formulation said that people must feel involved in the companies that they invest in. Although he did not use this maxim, but what about, "people must feel involved in the companies they work in"? At that level of philosophy, I am sure the noble Lord would agree that those phrases cannot be put in any order of merit. The formulation that people must feel involved in the companies that they invest in lacks the ring of credibility in the real world for two reasons. First, ownership—for example, through pension funds—is hardly likely to mean that one identifies particularly with the company; we do not know which companies we are investing in, do we? I shall refer to that again in relation to Clause 866, because I strongly support transparency of voting by institutional and other investors. Secondly, I must try to rephrase the noble Lord's maxim, because it suggests that it is impossible within the philosophy of Anglo-Saxon company law to do anything about this. I notice that the noble Lord, Lord Haskel, believes that the codification of the duties of directors is meaningful. I hope that it is meaningful and I hope that the Minister will say that it is meaningful and that it means something substantive; I know that he will wish to respond to that.
	My noble friend Lord Wedderburn of Charlton referred to the CBI in the 1970s. I echo his comments in terms of the CBI's evidence to the Bullock Committee, of which we were both members. He made an excellent point, which I wish to reiterate. The Bill is very similar to what the CBI said it wanted in 1975 in its evidence to that committee. I do not know what that proves, but it is an interesting reflection. Maybe it has taken the CBI over 30 years to catch up with that limited thought. I echo my noble friend's point about the tendency of the system—I will not use the "c" word—to produce more inequality. There seems to be an income distribution that is out of control within remuneration committees. In those countries which have a two-tier board system, or at least the remuneration committees in the successful Scandinavian model, and those countries with a GDP per head that is higher than ours and which compete in the global market—have a different philosophy about executive remuneration that is not against the interests of successful companies. They really could be said to believe in the idea of one happy family. But the idea that we have one happy family in our income distribution takes the biscuit in lacking credibility. All levels of employees should be represented on remuneration committees.
	The noble Lord, Lord Hodgson, who is welcome to intervene if I am wrong, asked whether some of the philosophical questions in the Bill and the whole question of directors' duties were a change of words or a change of policy. I am on the side of this being a change of policy, not just a change of words. If that dichotomy is to mean anything, we would not be making such a meal of a change in directors' duties if it was words without policy. That cannot possibly be the case, but I am sure that the noble Baroness, Lady Noakes, will put her own gloss on that. It will be interesting to see which way she jumps. Is it a change of words or is it a change of policy? I look forward to hearing what is in her mind.

Lord Lea of Crondall: I thank the noble Lord for that clarification. It does not remove my point that it could apply to the central debate that has been continuing for much of the evening about the codification of directors' duties. Is this just playing with words or is it a change of policy? As the noble Lord, Lord Haskel, said, there is something quite meaningful about the codification and my noble friend the Minister will comment that.
	I wish also to make a point about the dog that has not barked in this debate when it comes to modern companies. This must be the only economic debate that I can remember in the past couple of years when we have not talked about India and China. Yet it is remarkable, is it not, that here we have employees who are spread around the world? They have international trade unions. We have all sorts of ramifications of the global economy and I am a little surprised that I have not heard much about that, whether it is a European company or any other global phenomenon.
	In conclusion, will my noble friend confirm that the phrase "so far as reasonably practicable" does not mean that directors only have to have regard to these other interests when they do not find it particularly inconvenient to do so? I ask my noble friend to give a definitive assurance that the proviso about "reasonably practicable" will not drive a coach and horses through the clause as a whole.
	Finally, I echo those who have said that the operational and financial review in its new guise is important to produce a narrative which will give some substance to the philosophy of the Bill. As I have mentioned, I also believe it is very important that Clause 866 concerning transparency of voting will go a little way towards shareholders' understanding of companies, as the noble Lords, Lord Hodgson and Lord Freeman, have advocated.

Lord Tunnicliffe: My Lords, I start by declaring an interest as a non-executive director of three SMEs. I generally support the Bill and I want to make two brief points. As a member of the Merits Committee of this House, it is brought home to me every Tuesday how incredibly inaccessible UK legislation is. It is made up of statutory instruments that amend statutory instruments that stand upon Acts that amend Acts that amend Acts. This is not a consolidation Bill but it is great step forward. I congratulate the Government, the DTI and the draftsmen for taking so much of the 1985 Act, changing it and presenting it in a sensible and well written way. I have read about 50 of the 880 clauses. They are in plain language and stand by themselves, and I believe that this form and shape will make our debate in Grand Committee much more practical because we will all know more readily what each other is talking about.
	I want to talk briefly about Part 10, which I welcome. I particularly welcome the codification of general duties set out in Clauses 155 to 161. I disagree with the noble Lords, Lord Freeman and Lord Patten, that those clauses are not a good thing, and I very much look forward to the debate in Grand Committee clarifying what they mean. I hope that we will be able to persuade the noble Lords that they are no greater burden and that they are about certainty. My noble friend Lord Wedderburn brought out the point that they are based on certain common law rules and equitable principles. In other words, this code of conduct is what we have now but, to the average citizen, what we have now is obscure because it is in case law and common law and in the whole sense of equitable principles. It is for the Government, under questioning, to prove specifically that Clauses 155 to 161 will be no greater burden.
	I read those clauses and I think that I understand them. I particularly welcome Clause 156, which entails the principle of "enlightened shareholder value". However, Clause 156 is entitled, "Duty to promote the success of the company". The first requirement of the clause is to promote the company for the benefit of all members as a whole. Subsection (3) qualifies that by requiring the directors to take a long-term decision and have regard to the long term, the company's employees, the relationship with suppliers, the impact of the operations on the community, high standards of business conduct and acting fairly between the members. We will have to flesh out the hierarchy of those parts working together. There is some guidance in the Explanatory Notes on the clause. They state:
	"It will not be sufficient to pay lip service to the factors".
	Conversely, they state:
	"At the same time, directors are not required to do more than is practically possible in the circumstances of any particular business decision".
	Provided that that balance is right and that it works effectively and passes the test of adding no greater burden than is presently the case, I think that this is a good clause.
	The other clause that I welcome—once again, I look forward to listening to the debate that fleshes it out—is Clause 158. Far too often I have heard the argument that all directors are the same and therefore, by implication, they shall be equally knowledgeable and skilled. Clause 158 seems to me to set out that each director's skill and ability shall be reasonable and appropriate, which is not the same as saying that they will be the same as each other. Therefore, while you expect certain skills from, say, the finance director, the development director and the design director, from other directors you expect only the skills that they need to bring to the task that they do on that board of directors. I believe that that is a clarification and I hope that the debate will make it even more black and white.
	The codification will clearly be valuable to all directors. But one has to remember that, in a sense, there are two classes of director. There are those who are directors of large companies and quoted companies. In the case of large companies, the support of legal advice will be immediately available to them. The directors of quoted companies, who are what one might call "professional directors", have a duty to ensure that they are well briefed on those duties. But the vast majority of directors in this country are directors of small and medium-sized enterprises. They may be family firms as small as my neighbour's tree surgery company right through to larger firms—not-for-profit firms that nevertheless work under the Companies Acts. Some companies are owned by charities. The people involved in such companies want a simple statement of their duties. I believe that these three pages of the Bill do provide a simple statement of those duties.
	I hope that in Grand Committee we will convince the noble Lords, Lord Freeman and Lord Patten, that the Bill does not add burden and that it creates certainty. My business experience is that, when you create certainty, you reduce costs and you increase effectiveness. I look forward to following the Bill through Grand Committee.

Lord Razzall: My Lords, in winding up from these Benches, first, I join in the universal acclamation of the noble Baroness, Lady Bottomley of Nettlestone. I did not realise that it was her maiden speech until I saw the list of speakers, but she undoubtedly showed the charm and effectiveness that were the hallmarks of her performances in another place.
	Secondly, I declare whatever interests need to be declared on this occasion. I am never quite sure what we are supposed to do but, to the extent that I am sure, I formally declare the interests that are set out in the Register of Members' Interests for this House.
	In welcoming the Bill, as I think all speakers have done so far, first I join my noble friend Lord Sharman and the noble Lord, Lord Hodgson, in saying how disappointed we are that this does not constitute a proper consolidation of company law. Those of us who spent 30 years practising as company lawyers would not agree with the Minister's reference to the fact that it is all right that we do not have a consolidation because, after all, we can always look it up in Butterworths. Those of us who have attempted to look it up in Butterworths over 30 years have found that it is not as easy as the Minister professes. Therefore I think that it is a matter for regret that the Government have not taken the time to introduce one codified piece of legislation that sets out company law in a consolidated form.
	I will not go through the many points that noble Lords on all sides of the Chamber have made, but I shall make one or two general points, and raise one or two detailed points that have not been touched upon. First, there is a concern in the speeches of a lot of noble Lords—and in briefings that noble Lords have had from both the CBI and the Law Society—that the effect of this legislation will be to introduce a novel concept into English company law: interference by the judiciary in the exercise of business judgments by directors. There has been a tradition in this country that our company law disputes are primarily resolved in ways other than litigation. There is a concern right across the board that the Bill is in danger of driving a coach and horses through that principle. It does so in three ways.
	First, on the director's duties under Part 10, we on these Benches, like most noble Lords, obviously welcome the concept of enlightened shareholder value and the idea of a director's responsibilities being more widely defined, as they are in this Bill. However, the difficulties which go to my general point are the imprecision in drafting, which we can probably deal with in Grand Committee. Moreover, many of us feel that the interplay between statutory obligations and common law remedies is likely to lead to a considerable increase in litigation, to the detriment of the corporate wheel.
	There is also real concern, which I share, over derivative claims and Clauses 239 to 246. These provisions, including the possibility of third parties being joined in proceedings, are likely to encourage the threat of litigation not only by shareholders but also by those who may not have regard to the long-term interests of the company and shareholders as a body. That is a concern that we will need to come back to.
	Thirdly, as one or two noble Lords have mentioned, there is a danger of litigation becoming commonplace in major takeover transactions for the first time, almost in the American style. In general terms, the law of unintended consequences is starting to be a problem. As the noble Baroness, Lady Bottomley of Nettlestone, said, there is a concern that the likely emphasis on litigation is going to discourage the pool of those from whom non-executive directors in particular can be drawn, at a time when all the other pressures on corporate governance are to increase that pool of talented people and the number of those who are prepared to take that function on. That is a concern. With the practice that is starting to happen in the United States and with UK individuals being asked to be directors of US companies, there is already, as a result of the Sarbanes-Oxley Act and related legislation, a serious reluctance to take on those responsibilities. We would not want that to occur here, particularly as a result of the passing of this Bill.
	Two other principles have been touched on by other noble Lords. First, I will not say that a number of people are "browned off" by the announcement of the cancellation of the Operating and Financial Review, because that would be a terrible pun—but they clearly are. The Chancellor of the Exchequer clearly thought that he was going to get the unanimous support of the City and business by announcing this measure. Of course, he had forgotten, as my noble friend Lord Sharman said, that most companies in the City had already spent large amounts of money and time in getting ready to comply with the Operating Financial and Review. Most of them were entirely happy to comply with it. If the Chancellor wanted to announce something to reduce the burden of regulation, he could have thought of one or two other things rather than this. As my noble friend Lord Sharman indicated, what was going to go in the Operating and Financial Review is going to go, for most listed companies, in other parts of the accounts in any event. That will be a requirement of the stock exchange listing agreement. We therefore think that that is a mistake on the Government's part.
	The second general principle is that we have concerns about the mechanism which the Government are choosing for amending this legislation. We understand the argument that the legislative timetable would be in difficulty if we said that we must have a major company law reform Bill every two or three years. However, there is dissatisfaction over the mechanism, and we will have to look at the detail of that in Grand Committee.
	Two or three points have not been touched on. First—and you might expect me to say this—this is an opportunity to get the law on the disclosure of political donations right, in particular the definition of a political donation. There are significant practical difficulties, not major issues of principle, in determining what is or is not a political donation. For example, when Sainsbury's goes to each party conference and sponsors a reception, does that constitute a political donation? There is some opaqueness in that and people are interpreting it in different ways. Is it for the benefit of Sainsbury's business and therefore not a political donation; or is it for the benefit of the party in question and therefore a political donation? There is an opportunity to tighten that up in Committee.
	Secondly—and I am not sure that anybody has touched on this important issue for smaller private companies—what are such companies allowed to do on offers to the public; in other words, the interplay between the rules regarding prospectuses and the rules under company law? The Law Society feels, as do I, that this is an opportunity missed to tighten up and clarify those rules.
	Finally, we on these Benches welcome this Bill. We are clearly going to have a lengthy time in Committee. In closing, I hope that the captains of industry who so often grace the Benches of this House by their absence will find the time to come and give us the benefit of their wisdom and experience in Committee. After all, that is why, we were told, they are here.

Baroness Noakes: My Lords, I start by reminding the House of my interests as declared in the register. In particular, I am a non-executive director of four listed companies.
	Today's debate has shown your Lordships' House at its very best. We have had some well-informed contributions from a number of different angles. For me, however, the high point was the maiden speech of my noble friend Lady Bottomley of Nettlestone. We all know of her outstanding track record in government, in health and, in particular, in national heritage. Today, however, we saw her reveal her in-depth knowledge of contemporary corporate issues. It was a marvellous speech and we hope that she will be joining us as we journey through the remaining stages of the Bill.
	My noble friend Lord Hodgson of Astley Abbots set out our general approach to the Bill in his opening speech and he welcomed the Bill in principle. He set out our three tests for the Bill. Is it really deregulatory? Does it make company law more comprehensible? Do the proposals strike the right balance? I am afraid that we cannot give the Minister 10 out of 10 on any of these tests. My noble friend referred to several areas which we will want to pursue in Committee. The Minister will have noted my noble friend's concerns about the powers in Part 31. Those concerns were shared by a number of other noble Lords. My noble friend Lord Freeman and the noble Viscount, Lord Bledisloe, were particularly robust on this matter. I was glad to hear that the noble Lord, Lord Wedderburn, also has concerns about it. The recommendation of the Delegated Powers and Regulatory Reform Committee was strong and clear, and we cannot brush that aside. We will of course return to the matter in Committee.
	Part 11, which deals with derivative actions, has also raised many concerns. My noble friend Lord Trenchard supported my noble friend Lord Hodgson in raising them, and the Liberal Democrat Benches share the same concerns. I foresee another heavy Committee sitting on that, as the noble Baroness, Lady Goudie, predicted.
	We are delighted that my noble friend Lord Freeman will be leading for us on Part 10 of the Bill. He made some powerful points in his speech about the new formulation of the duties of directors. The Government have said that the Bill largely codifies the law as it stands, but we are simply not convinced that this is the case. In answer to the probing question of the noble Lord, Lord Lea, it probably does change the law and we are not entirely happy about it.
	In principle, it is good to see that Clause 156 emphasises the duty of directors to promote the success of the company for the benefit of the members. That seems to be superficially attractive, but my noble friend Lord Patten exposed the complete lack of clarity in this formulation. Part 10 will receive the most careful scrutiny.
	My noble friend Lord Hodgson has already said that I will be leading for these Benches on Parts 15, 16 and 33; namely, those parts which deal with accounts, audits and auditors. Part 15 starts fairly uncontroversially by stating that, in relation to accounts, its main distinctions are between small companies and other companies, and between quoted companies and unquoted companies. Would that it were so simple. There are also distinctions between public companies and private companies. Medium-sized companies have some rules too. Part 16, which deals with audited accounts, also makes special provisions for dormant companies, for charities and non-profit-making companies subject to public audit, and a miscellany of other kinds of companies.
	The Bill really has not made this area very much more simple or accessible. It is not a trivial issue. If I were responsible for running a small or a medium-sized company, I would have to wade through 99 sections in Part 15 and a fair part of the 72 sections in Part 16 before I was sure of my obligations. That is an unnecessary bonus for accountants and lawyers, and it certainly does not contribute to deregulation.
	The Chancellor of the Exchequer has, somewhat dubiously, already claimed his deregulatory credit for the amendments to Part 15, which we will be expecting in due course, in relation to the OFR. A number of noble Lords have spoken about that. My noble friend Lord Hodgson and the noble Lord, Lord Sharman, have already queried exactly what the Government intend. Will it be the business review requirement under the European directive or will it go further? Companies need some certainty on this. Having already made one abortive attempt at gearing up to meet one set of requirements, they need to know what is expected of them.
	We have heard a number of views today about the OFR. I confess that, somewhat unfashionably, I have never been convinced that there was sufficient evidence of benefit outweighing cost to justify a statutory requirement. Indeed, I had intended to table amendments to take the OFR out of the Bill in order to debate those issues.
	Whatever the precise form of the amendment when we come to consider the Bill in Committee, there will be a need for a business review—we know that much—and we know that that will require companies to make forward-looking statements. We agree with the CBI and others that a safe harbour provision is necessary to allow meaningful statements to be made by directors in this area.
	We particularly welcome Clause 366, which states that accounts are to give a true and fair view. This might seem a small point, but its absence as an explicit requirement was a source of potential problems when international financial reporting standards were introduced, but it is a pity that the even bigger problem that is affected by IFRS—namely, distributions, to which the noble Lord, Lord Sharman, referred—has not been dealt with in this Bill. We will want to look at that in Committee.
	So far as the rest of Part 15 is concerned, we will want to return to various aspects during the Bill's passage; for example, the new duties on directors in relation to directors' reports and the new duties on quoted companies in relation to websites. We will be looking in particular at the practical issues that arise in these areas.
	The Minister will not be surprised to find that the new provisions in Part 16, which restrict the liability of auditors, will be a focus of attention. There has been much rejoicing among auditors over Clause 518. While I do not believe that there is much objection to the principle, there are a number of practical issues to consider and to which I am sure we will return in Committee. In particular, we need to understand why the Government have not drafted explicitly for proportionate liability, because that is what we understood to be the agreement between all the parties who had been involved in the discussions about auditor liability during many months and years.
	I have one question for the Minister on this clause. When the Bill was published, his right honourable friend Mr Alun Michael was reported to have said that audit fees would be expected to fall once auditors had successfully limited their liability using this new facility. This is a matter of some concern to companies which have been faced with audit fees ratcheting upwards in recent years. I hope that the Minister will indicate what information the Government have on the cost/benefit equation as it affects audit fees.
	As we have already heard, auditors' rejoicing over liability limitation has been counterbalanced by their dismay at the new criminal offence of recklessly giving an audit report, as set out in Clause 494. We are not convinced that the concept of recklessness in the absence of dishonesty has any place in the scheme of offences under the Bill. However, offences based on recklessness for directors already exist, and it would be easy to conclude that even-handedness requires that auditors should be subject to similar requirements, but I am not sure that the public interest is necessarily served by this. A number of practical issues arise; for example, the interaction between the individual auditor who signs the accounts and his firm; between the criminal law process and the independent disciplinary arrangements that already exist. These interactions may impede achieving the desired outcome, which I assume is to stop the auditor concerned carrying out any more audits. We all need to look at this matter very carefully during the passage of the Bill.
	The final part which I shall address is Part 33, which deals with statutory auditors. This is a part of the Bill which I believe even auditors do not find very exciting. We definitely welcome the Government's long-overdue implementation of the report of the noble Lord, Lord Sharman, and their allowing the Comptroller and Auditor General to audit the accounts of companies. Without in any sense qualifying that welcome, I give notice that we will want to examine the detail of that when we reach the later stages of the Bill. We will want to ensure in particular that the supervisory arrangements that have been specially created for the Auditors General are completely independent of them. The Minister will be aware that the current Comptroller and Auditor General is currently the chairman of the public oversight body for auditors, which is, as I understand it, likely to carry out the supervisory tasks set out in Part 33.
	Lastly, I return to the Bill overall. My noble friend Lord Hodgson and other noble Lords have already referred to the way that company law will continue to be scattered over several Acts once the Bill is enacted. We simply do not buy the argument that users are content with that and are happy to carry on purchasing the Butterworths book in order to get some sense of how the legislation fits together. I simply give the Minister notice today that we will wish to return to this issue during the passage of the Bill.

Lord Sainsbury of Turville: My Lords, all noble Lords who know the noble Baroness, Lady Bottomley of Nettlestone, expected a fine maiden speech and, of course, we were not disappointed. She is the daughter of John Garnett, who was a behavioural scientist for many years, and she was a very distinguished Secretary of State for Health and for National Heritage. She brings much experience, as well as charm and intelligence, to the House, and I know that in future greatly benefit from it.
	Many interesting and important points have been raised today, from a number of different perspectives. The Bill has been the subject of extensive consultation with business, the legal and accountancy professions and other interested parties and today's debate has shown that it will continue to attract a high level of detailed and expert scrutiny during its passage.
	This is obviously a complex Bill. Before dealing with the key points raised in today's debate, I would like to comment on two issues, both raised by the noble Lord, Lord Hodgson, which are relevant to how we handle the Bill in Committee,. The first issue is regulations and how we plan to use the powers in the Bill. Much company law is still set out in primary legislation, but the Bill contains roughly 130 substantive individual provisions for delegated legislation, of which about half are new powers to make regulations, and the rest amend, re-enact or restate existing powers. We have used subordinate legislation for a number of reasons; for example, to avoid putting detailed technical provisions on the face of the Bill; to ensure flexibility in responding to changing circumstances, especially technological advance and greater international mobility; and to allow the registrar of companies to make the detailed rules associated with delivering and filing documents.
	In a number of areas we have already published detail on the regulations which are planned. For example, we published draft model articles for private companies for consultation in March last year, and will publish drafts for public companies during the passage of the Bill. The Takeover Panel similarly published, in November 2005, full details of its proposals for the use of the rule-making power to be extended to it in relation to takeovers and other regulatory matters.
	It must also be stressed that there are a number of powers contained in the Bill where the Government have no current plans to make regulations. They are included to maintain flexibilities and to anticipate future developments, or to act as a back-stop in case market developments do not in themselves deliver the changes which we want to see made. The Government would expect to consult should it become necessary to use these powers in future. I will come later to the proposed company law reform power.
	The second issue is the change of words from the 1985 Act and where a change of wording is a matter of substance, and where it is merely cosmetic. This was also raised by the noble Lord, Lord Hodgson. Our underlying approach in this Bill has been to simplify. Sometimes this has been a question of making substantive changes of policy, and sometimes it has been more an issue of simplifying the drafting of the law to make the language more accessible or consistent, or to reorder the provisions in a more logical way. This approach has been widely welcomed, and I am very pleased that the reactions we have had from stakeholders to the new Bill suggest that the draftsman has been remarkably successful in setting out the law in a way which is as clear and accessible as possible.
	But I recognise that there can sometimes be questions as to whether a particular change in the language represents a change of substance, with real legal effect, or is a change in language. My department has produced a table of destinations and derivations, showing for each clause in the Bill where it derives from an existing section of the 1985 Act or elsewhere and, if so, whether it introduces a change of substance or is more by way of a simple restatement of the existing provision. That document has been placed in the House Library and is available on the DTI website. I hope it will be of some assistance.
	Of course, we will come at later stages in the House to discuss individual clauses in more detail. If and when it would be helpful to remove doubt, I will, of course, be very happy to set out the position in respect of specific provisions in more detail.
	I would now like to comment on some of the key issues raised during the debate. The Bill has more than 800 clauses and the debate involved 21 speakers who raised more than 100 questions, so I cannot answer all of them. I shall try to cover the fundamental issues in the Bill and we will have plenty of time in Committee to cover the detailed points.
	I shall start with directors' duties, which are at the heart of the Bill. The noble Lords, Lord Clinton-Davis and Lord Freeman, raised the accessibility of law on directors' duties. Codification will help to make the law clearer, but we also need to make the law more accessible to the thousands of directors who, quite understandably, will not read companies legislation, however elegantly or clearly drafted. That is why we are also committed to producing plain language guidance which will be made available to all directors.
	Clause 156 addresses the key issue of in whose interests a company should be run. The clause enshrines in statute a concept which the Company Law Review called "enlightened shareholder value". This has two main elements: it gives directors the clarity they need by setting as their objective the success of the company for the benefit of shareholders collectively and, at the same time, the clause recognises that a focus on the short-term financial bottom line cannot deliver long-term prosperity. Directors, in fulfilling the duty, are therefore required to have regard to factors such as the long-term consequences of their decisions, the interests of employees and the impact on the community and the environment "so far as reasonably practicable".
	I am aware that some noble Lords would prefer an approach which the Company Law Review called "pluralism", and I believe that that is the direction in which the noble Baroness, Lady Tonge, and the noble Lord, Lord Judd, were heading. Under it, directors would be required to serve a wide range of interests. Both the Company Law Review and the Government have considered the case for a "pluralist" approach very carefully. There are three main reasons why we do not believe it would be the best way forward: a pluralist approach would muddy the waters unhelpfully; directors would lack clarity about what they were meant to be doing; and it would, in practice, be more difficult for anyone to hold directors to account. Secondly, company law reform is not a suitable vehicle for our wider agenda on corporate social responsibility. Issues such as environmental protection and health and safety are very important, but they should not be addressed through company law reform. The best way to promote responsible business behaviour is to show how such behaviour leads to business success.
	The noble Lords, Lord Sharman and Lord Clinton-Davis, and the noble Baroness, Lady Bottomley, raised the issue, and the noble Lord, Lord Lea of Crondall, noted the significance, of the words "so far as reasonably practicable" in Clause 156. They have a dual purpose. First, we recognise that business decision-making will sometimes be constrained by time constraints and other practical limits. That does not, of course, mean that directors can simply ignore factors such as the interests of employees, and it is hard to conceive of any situation, even the most urgent, where it will not be reasonably practicable to give any regard to the factors at all. The words also make clear that directors must consider the factors to the greatest extent that it is reasonably practicable to do so. It is, of course, in the company's interests that they should do so. The duty of directors is not to consider the factors in a superficial manner as part of a box-ticking exercise, but to think through the long-term implications of their decisions and address potential risks.
	I believe that our approach in this clause responds to wider expectations of responsible business behaviour in a pragmatic and commonsense way. The clause does not impose new duties on directors, and the duty to promote the success of the company will continue to be governed by the good faith judgment of the directors. The courts should not be any more likely to second guess business decisions taken in good faith by directors.
	The Bill will codify the common law duty of care, skill and diligence without substantive amendment. Recent developments in the law in this area have been influenced by Section 214 of the Insolvency Act 1986, and Clause 158, which introduces a statutory duty to exercise reasonable care, skill and diligence, closely follows this section of the Insolvency Act. The Bill does not make this duty more onerous. On the point from the noble Lord, Lord Borrie, we do not think it will affect director recruitment or behaviour.
	My noble friend Lord Haskel asked for an assurance that the deregulatory measures in the Bill will in no way diminish the duty of care owed to the company by directors of small companies. I am happy to give that assurance. The noble Lord, Lord Patten, asked what the success of the company means and who are its members. Success for a commercial company means, normally, long-term increase in value. For certain companies such as charities and community-interest companies it means achievement of their objectives. Members is a company law term to cover shareholders and guarantors of companies limited by guarantee. It does not include employees.
	The position of auditors is another major issue in the Bill. The noble Baroness, Lady Goudie, argued that the threat of criminal prosecution will cause all auditors to carry out more checks and be less willing to exercise judgment. There is no reason why they should. If an auditor is not acting recklessly at present there is no reason why they should change their behaviour because we are introducing this offence. The noble Baroness asked for an assurance that honest mistakes would not result in prosecution. I can give that assurance, not because dishonesty is required for committing the offence—it is not—but because to show that an auditor has acted knowingly or recklessly requires more than a mistake. It requires a conscious decision by the auditor: at least a decision to turn a blind eye. It is possible that some auditors may misunderstand the risk of prosecution, and that this could have adverse consequences. We will be happy during our further consideration of the Bill in committee to explain fully what will be the effect of the phrase "knowingly or recklessly", and of the provision as a whole, so as to help avoid such misunderstandings.
	Our proposal on auditor liability addresses the perceived unfairness that can arise when the negligent auditor is the only solvent defendant after a corporate collapse. It could prevent the loss of one of the big four accountancy firms. On the other hand, it gives the company and its shareholders the option whether to agree to a limitation. If they have agreed, the proposal still ensures that the company has a right to a fair and reasonable compensation from the auditors. The noble Baroness suggests that the Bill as drafted requires a liability limitation agreement to define the limitation as a monetary amount. It does not. The Bill leaves company and auditor free to contract in whatever terms they want. If they were to agree to limit liability to a specific financial limit, it would not be effective if it was not at least fair and reasonable, and the limit would instead be what was fair and reasonable. Having been a finance director for many years, any prediction that audit fees will come down in any circumstances strikes me as incredible. We believe that the clause as drafted will enable the court, if necessary, to determine an amount that is proportionate. It will be able to strike a fair balance between the company and the auditor, taking into account the auditor's responsibility to the company.
	The Operating and Financial Review was raised by many noble Lords. Our reason for removing the requirement was that the costs associated with it were, we believed, disproportionate. It was about £33 million, of which £31 million was extra audit requirements. I agree with my noble friend Lord Gordon of Strathblane that we have got to the right place but not necessarily by the most elegant route. Companies will still need to include a business review as part of the directors' report, in compliance with the EU Accounts Modernisation Directive requirements. We are committed to improving strategic, forward-looking narrative reporting by companies, and to enhanced dialogue with shareholders based on such reporting. It is important for companies to report on non-financial issues relevant to the development and performance of the business, including, for example, environmental and employee matters. Companies will be required to do this as part of the business review.
	As I explained in my opening statement, we have invited views by 15 February on whether the business review requirements should be clarified to achieve their objectives more effectively. We will take full account of these views on deciding how to frame the amendments we will be bringing forward to the Bill relating to these provisions. Depending on the timing of the Committee stage, we may bring forward amendments either at Committee or Report. In response to the question of the noble Lord, Lord Hodgson, it is our intention to bring forward amendments to the Bill to remove Clauses 393 to 395 as they currently stand.
	The noble Lord, Lord Hodgson, and the noble Baroness, Lady Murphy, raised the issue of shareholders' rights. The Government are committed to encouraging the greater enfranchisement of shareholders and the responsible exercise of share ownership rights. That is why the Bill includes new provisions under Clauses 136 and 137 to ensure that companies can enable indirect investors—such as those investing through nominees—to exercise and enjoy varying levels of shareholder rights as suits their needs. The Government believe that a voluntary approach is the better way to achieve greater enfranchisement of indirect investors. However, if the market does not develop appropriate solutions the Secretary of State may exercise the power under Clause 137 to compel companies to provide information to indirect investors. The power is intended as an additional tool towards encouraging and achieving greater enfranchisement benefits. Better-informed investors should be better equipped to demand voting and other governance rights from nominees and the companies in which their investments are made.
	My noble friend Lord Haskel suggests that companies taking advantage of the electronic communications provisions should automatically be required to enfranchise nominee shareholders. The extension of governance rights to indirect investors and the provisions enabling companies to default to e-communications are entirely separate measures. E-communications present great opportunities not only to reduce costs, but also to enhance the immediacy of dialogue between companies and their shareholders and indirect investors. However, to make enfranchisement of nominee shareholders mandatory would require a definition of exactly which indirect holders should be enfranchised—which would be difficult. We would therefore prefer market solutions to develop but, if they do not, the power will be available.
	The noble Baroness, Lady Murphy, asked what would be an improper use of the register of shareholders. A current issue here is the use of the register of shareholders by animal rights extremists to harass shareholders. That has been a major problem. We have dealt with it as a one-off, but there are other areas where similar activity could occur and we want also to be able to deal with that.
	The noble Lord, Lord Sharman, and my noble friend Lord Borrie raised the question of the rules on dividends. My noble friend Lady Goudie also argued that we should expand the Bill to include provisions relaxing the law controlling the payment of dividends by private companies. We understand the concern about current law that links payment of dividends to the concept of realised profits, but the rules on dividends and other distributions are of central importance in protecting creditors and other third parties involved with companies, including lenders, employees, pensioners and trading partners. We see no obvious or simple answer to that complex and important issue. We need to consider it carefully and we intend to do so in full consultation with interested parties.

Lord Davies of Oldham: My Lords, I beg to move that this Bill be now read a second time.
	We will hear many interesting and compelling speeches in this debate today. One voice we shall miss, however—which would have been heard but for his untimely death—was that of Tony Banks, Lord Stratford. He spoke to me before Christmas of his relief that this debate had been postponed so that he could express his very great enthusiasm for the Bill and his pride that his area of London would be the major site for the Games.
	He would not only have spoken well in this debate but would have brought to our forthcoming work the real experience he gained when fronting our bid for the football World Cup several years ago. That experience would have been invaluable, communicated by his capacity for directness, his wit and his intelligence. As a former Sports Minister he had so much to offer in this work. But also, of course, he had an interest in the arts and in the general work of the House, which I know in his short time here he had grown to respect.
	London won the Olympic bid because we promised the International Olympic Committee that we were able to deliver. Since July, we have made good on that promise. A huge amount of progress has already been made towards 2012. Compulsory purchase orders have been issued to acquire the land needed in east London; the first contracts have been let to get power lines underground in the area that will become the Olympic Park; an interim Olympic Delivery Authority has been created and the top management team appointed; and the London organising committee for the games has been formally established under the able leadership of the noble Lord, Lord Coe.
	The IOC visited London last November and professed itself extremely happy with the progress we were making. In its view, we are currently two years ahead of the schedule of any previous host city. It was particularly impressed that we had already made such good progress with this Bill.
	We could not have made that progress without the help of the Opposition parties. Their support, both for the bid and the work that we have done since, has been unremitting and I thank them for that. I am confident that it will continue—I certainly hope that it will continue—as the Bill goes through the House. It is vital that we get this legislation to Royal Assent as quickly as possible, to put the ODA on an operational footing and to begin the hard work that will be needed to get everything built on time and on budget.
	The Bill does three things, all of which are essential to our success. It establishes the ODA and gives it the powers it needs to get London ready to stage the Games; it provides the powers needed to meet IOC requirements about the way in which the Games and the Olympic environment are managed; and it tailors the powers of other bodies, including the Greater London Authority and regional development agencies, where they have a role in the Olympic project.
	We are also concerned, and were concerned in the other place, to give reassurance about some crucial difficulties surrounding the Bill. We wanted to give clarity and reassurance on how restrictions on ambush marketing will work and who will or will not be caught by these rules. We think we have clarified these matters through the amendments passed in the other place, but we will have time, during Committee, to examine more thoroughly what I recognise to be an interesting and challenging area.
	The first half of the Bill deals with the ODA. Clauses 3 to 7 establish the ODA and give it the powers, functions and duties it needs to get London ready for the Games. They include a duty to have regard for the legacy of the Games in everything that is done, and a duty to contribute to sustainable development. It is important not to lose sight of the unique selling point of London's bid, namely the legacy that the Games will bring to the United Kingdom in terms of sporting facilities and participation, and in the complete regeneration of one of the most deprived areas of London.
	Clause 5 allows the ODA to be appointed as the local planning authority for the Olympic Park, on the same model as an urban development corporation. That should ensure a co-ordinated approach to the development of the park and reduce the risk of unnecessary delays to the project. The precise boundaries of the ODA's planning powers will be determined by order and of course there will be consultation on that order early this year. Clause 6 requires the ODA to have regard to security in exercising its functions; all noble Lords will recognise how important this dimension is to the successful prosecution of the Games.
	Clauses 10 to 18 deal with transport and establish the ODA as co-ordinating authority for the Olympic transport plan. Existing transport authorities will have a duty to co-operate with the ODA in order to implement this plan and to deliver Olympic transport services. The Bill provides for the creation of an Olympic route network, and the ODA will be able to issue traffic regulation orders on that network.
	The ODA's role will, of course, evolve over time. It has the important job of constructing the venues and planning transport in the run-up to 2012. It will then co-ordinate transport systems during the Games, and will manage the environment around venues, so that the streets are clean and the Games are not commercially exploited. After the Games, the ODA will take a role in reconfiguring the venues, but that is its final responsibility. It will essentially be a time-limited body, focused on delivering the London Games. Clause 9 therefore provides for the Secretary of State, having consulted the Mayor, to lay an order to dissolve the ODA.
	The second half of the Bill deals mainly with the measures needed to meet the IOC's requirements for what it terms brand protection. We signed up to meet those requirements when in bidding for the Games. We are therefore bound, under the host city contract, by the IOC's technical manual on brand protection. We have put a summary of the relevant sections of that manual in the Library. Clauses 19 to 30 allow for regulations to be made controlling outdoor advertising and street trading in the area around Olympic venues. I recognise that this is an issue we will wish to explore in greater detail in Committee.
	Clause 31 outlaws ticket touting in connection with the Olympics. Again, this provision is brought in because the IOC requires that ticket touting be prevented. In bidding, London accepted the nature of those requirements. Of course, I am aware that other sporting bodies argue that there should be a wider ban on ticket touting. We in the department are currently working with all sectors, including sport, the arts, the creative industries and other stakeholders to gather evidence about touting practices across a wide range of areas. However, the IOC makes the Olympics a special case and we are under an obligation to meet that.
	Clauses 32 and 33 and Schedules 3 and 4 provide for the protection of Olympic intellectual property. They stop businesses unfairly cashing in on the Olympic or Paralympic Games by wrongly implying that they have some form of commercial or contractual association with the Games. These restrictions are designed to protect the public image of the Games, but they also protect the public purse by maximising sponsorship income.
	Existing legislation already prevents any unofficial commercial use of the word "Olympic" and the Olympic rings, and the main aim of Schedule 3 is to provide equivalent rights to the Paralympics. Schedule 4 extends protection to other, more imaginative forms of association and ambush marketing. But, contrary to some press reports, it will not place a blanket ban on using words such as "summer" and "games". Factual references to London and to the Olympics will still be perfectly legal. So will explanations of the purpose or characteristics of any goods or services. So will editorial use in media coverage.
	In its final clauses, the Bill provides new Olympic-specific powers for the Greater London Authority and the RDAs to ensure that they can make the contribution that we require of them. Clauses 34 and 35 give the GLA a specific power to prepare for the Olympics because it was the Mayor of London, along with the British Olympic Association, who signed the host city contract with the IOC. So to provide absolute clarity that the Mayor is able to honour his commitments, the Bill makes it clear that he and the GLA have the power to comply with his obligations under the contract and to prepare for and manage aspects of the London Olympics. There should be no need for this power after the Games, and Clause 35 therefore provides for it to be switched off by the Secretary of State. A similar power is given to RDAs in Clause 36.
	The Olympics present us with a wealth of opportunities. We need to make the most of them. In 1948, with the world still recovering from war, London put together a memorable Olympic Games when no one else was able to. For 2012, expectations will be much higher. And no one has higher expectations than the residents of east London. That was clear in their enthusiastic reaction to our victory on 6 July. We must make every effort to make the Olympic dream comes true for those people and for the whole of the United Kingdom. The Bill is the first step towards success. I commend it to the House.
	Moved, That the Bill be now read a second time.—[Lord Davies of Oldham.]

Baroness Valentine: My Lords, it is an extraordinary and unexpected privilege to find myself in your Lordships' House. I have been made to feel most welcome and look forward to becoming, dare I say, one of the younger members of the team. And team spirit is what we need for the Olympics. It is what delivered us the bid and will deliver the best Games yet.
	But before leaving the starting blocks, I would like to express my gratitude to the noble Lord, Lord Sheppard of Didgemere, who, as president of the business organisation London First, provides me and my colleagues with wise, prompt and good humoured advice. As chief executive of London First, I am a huge supporter of the London Olympic and Paralympic Games. We have a real chance in the United Kingdom to make these the best Games ever held. But more than that, we have the opportunity to make a positive impact on the capital, and the rest of the UK, by securing a lasting Olympic dividend.
	My commitment to athletics stems from my school days when I was once long-jump champion for London. I well remember that surge of energy before rushing off down the track in a bid to do better than all those who had come before. The UK is in that position now. The bid team has got us off to a flying start, and has handed over the baton smoothly to the London Organising Committee of the Olympic Games, which has put the team in a strong position to create an Olympics of which to be proud. Recently the International Olympic Committee visited London and felt we were some two years ahead of where previous host cities had been at a similar stage. So we have started well.
	The preparatory work over the coming months must pave the way not just for a superb Olympic event but for a permanent change to the spirit, physical fabric and economic structure of east London. This is what I referred to a moment ago as the Olympic dividend. And, as I learnt from my time in corporate finance at Barings and BOC, as well as making good investments you need to work hard to maximise their potential.
	The region in which the Olympics are to take place includes some of the most deprived councils in England. It is host to a young, diverse, socially and economically disadvantaged population whose prospects could be transformed as a result of these games taking place on their doorstep. There will be more jobs—recent estimates suggest some 38,000—more homes and better transport, resulting in a more healthy and prosperous population.
	We must all support the Olympic Development Authority in creating the infrastructure for these Games. I am delighted that it is to be business-led and the recent appointments have been welcomed by the business community. It needs to be allowed to get on with doing the job without day-to-day interference; and to achieve that requires clear political direction—someone or something that plainly speaks on behalf of all arms of government.
	But the Olympic dividend requires more than just the Olympic Development Authority. Government, the mayor and business will continue after the ODA has completed its task; and they share the responsibility of providing opportunities for the people of east London. The plethora of well intentioned initiatives to provide skills training and education enhancement arising from the Olympics must be effectively co-ordinated to that the people to whom these are directed genuinely benefit.
	In the late 1980s I set up a regeneration partnership in Blackburn, Lancashire, working with local businesses and the Asian community there, which taught me the importance of working with the people you are trying to help, to ensure that programmes intended for their benefit actually address their needs. The current review of the Mayor's powers, including skills leadership, provides the opportunity to debate how best we collectively deliver for east Londoners. It is vital that business plays its full part in any structure in informing the training and education, in providing pragmatic leadership and, ultimately, employing the individuals.
	The speed at which the Bill has progressed and the decisions that have already been taken to drive forward transport projects, such as the East London Line extension, with its innovative commitment to employing local labour, and the completion of the northern ticketing hall at King's Cross, are impressive. I would like, in particular, to recognise the way in which the Olympic boroughs have come together to resolve highly complex planning issues. I understand that they intend to continue this level of co-operation throughout the run-up to the Games.
	Lastly, as a former National Lottery Commissioner, I am pleased to say that the National Lottery was so confident that we would win that Olympic scratchcards were printed and ready to distribute on the day of the decision. To date, more than £3 million has been raised by the National Lottery. This combination of belief and preparation should characterise our delivery of the 2012 Games. It is the combination that generates the surge of energy required to excel and surpass all Olympiads that have gone before.

Baroness Billingham: My Lords, I add my warmest congratulations to the noble Baroness, Lady Valentine, on an absolutely outstanding maiden speech. I am sure that she will already have gathered that we regularly have debates on sport in this House. The people she has heard today are an illustration of the distinguished people we have here. We have Olympians; we have people who have been involved in sport for many years; we have powerful voices in sport. In fact, I like to think that this is a really top team; an elite squad in itself. The noble Baroness will be very much welcomed to join us in these regular debates in this House and I look forward to her contributions in the future.
	Let us look back to 6 July. As has already been said, it was a moment that is frozen in time. It was a seemingly endless moment between the opening of the envelope and the magical announcement, "And the chosen city is—London". How we cheered, how we leapt—some higher than others—and how we wiped away a tear or two. The nation celebrated all the sweeter for it being that little bit unexpected. Tonight, we take on in this House the responsibility of ensuring that those magical moments of aspiration are converted into solid strategies for realising them.
	The Bill before us today is the blueprint. It sets out the structure for managing the key facets of the Games, the management planning and the financial investment that is essential if we are to be successful. The background to the Bill indicates the Government's determination to create what has been described as "the greatest stage ever constructed for the greatest show on Earth". Drawing on expertise worldwide, the DCMS has formulated the Bill after the closest possible co-operation with key players. They have already been mentioned: the British Olympic Association, London 2012 Limited and the Greater London Authority. Those major agencies have brought to the table a huge pool of experience and expertise and the resultant Bill is, in my view, due in no small part to their professionalism and commitment.
	But whilst the British people have a warm heart in favour of staging the Olympics here in the UK after, as we have already been reminded, so many years, they also have a cold eye on delivery and cost—and quite right too. The Games have to be properly organised; they must be delivered on time—and, in my view, well before time in order to detect any flaws—and costs have to be not only controlled but realistic. Bearing all that in mind, we welcome the role of the Olympic Delivery Agency, the ODA, as set out in the Bill. It is charged with the responsibility of managing our approach to the Games.
	It has a huge challenge before it, balancing the long-term objective against the short-term delivery vehicle. At the same time it has to take, in that vehicle, public opinion, media challenges and national confidence. All those challenges have to be faced across the whole of the UK, not just in London where the Games will be principally staged.
	We in this House do not have constituencies to promote as Members of the other place clearly have. They quite rightly seek to ensure that where possible and reasonable their neck of the woods receives a fair share of the opportunity afforded by the Games. That fair share may be prior to the Games in training facilities, during the Games with specific sports being hosted in their area, and, equally important to their region, benefiting from the legacy of the Games.
	However, we in this House have strong ties and we should not be reluctant to make the case for dispersal of the opportunity that the Games can afford. I have to say that I unblushingly suggest that Corby be considered as a wholly appropriate venue for any stages of the Games that are set out. Yes, I confirm that I chair the URC, Catalyst Corby, and therefore declare an interest. That experience of chairing the first URC to be designated, some five years ago, makes me all the more appreciative of the extraordinary challenges that lie ahead of the ODA. It will require enormous attention to detail and the most sensitive approach to put the blueprint into effect. We are not just dealing with pieces of land; we are dealing with people's lives—people who, at present, may feel threatened, and towards whom special care should be shown. I would welcome the Minister's response to criticism from some quarters that existing businesses and some local residents have not had a proper hearing or compensation. How does the Bill help in these matters?
	Over the past months I have spoken at conferences looking at the opportunities for the construction industry and property developers, which were already flowing from the Olympic project. I have also spoken to local authorities closely involved with the project, who see the enormous potential for their areas. Several issues have emerged from these conferences, which I hope the Minister will be able to address, and perhaps reassure us. The construction industry has expressed concern at the lack of skilled and semi-skilled workers, who will be needed to build the facilities required. What is being done to increase the pool of such a workforce?
	There are existing schemes, with examples all over the country, including apprenticeships, technical training in further education and company-based training schemes. The long-term unemployed are being targeted to encourage them to take up such opportunities, and training in young offenders' institutions and prisons is also under way. These are excellent projects, but what are the Government doing to support and encourage more? Are we providing enough advertisement of skilled and semi-skilled opportunities in all EU member states? Are the regional development agencies fully engaged? I know that the East Midlands Development Agency is doing pioneering work. Their support of Catalyst Corby has been outstanding; are we drawing fully on their expertise?
	What is the timetable for accountability? Will we be given regular briefings and, perhaps, brought into debates when problems—and they will arise—become apparent? Already the chattering classes, in Hampstead at least, are complaining about the lack of car parking facilities in the overall scheme at the Olympic venues. Perhaps the Minister could take this opportunity to show us how public transport will be transformed to more than meet the requirements.
	Important though these individual issues are, the Bill gives us enormous confidence that London will be a stunning success in all respects, and that the Games will indeed be a triumph. I know I share with the whole House our best wishes for those who lead this project, not least the noble Lords, Lord Coe and Lord Moynihan, and the leaders already appointed to take the project forward. Our Secretary of State at the DCMS and the Sports Minister have indeed been outstanding.
	Seven years seems a long way ahead; not a bit of it. I will be among the first to buy my tickets for many events and I confidently expect my grandsons, who by then will be 14, 12 and 10, to be with me. On behalf of sport lovers everywhere, and gallivanting grannies in particular, may I wish the Bill a safe passage through the House? I look forward with enormous excitement to witnessing the Olympic Games of 2012. May I finish by addressing the point raised by Lord Glentoran: the possibility of Wimbledon being hijacked? I have a far more pleasurable vision in my head: that of Andy Murray standing on the rostrum with the gold medal at his lips, in the Centre Court. I can hardly wait.

Lord Berkeley: My Lords, like the noble Lord, Lord Brooke, I can boast no sporting achievement whatever but I have an interest in transport. I want to see the transport arrangements for the Games work and work successfully. One of the bravest decisions that Ministers made some time ago was not to try to include Crossrail as that would have been a disaster. I believe they have achieved some excellent arrangements without Crossrail. Whether the construction of Crossrail takes place can be debated elsewhere, but the arrangements are very good and I congratulate them.
	As the noble Lord, Lord Brooke, said, not only could the phrase "gold plating" be illegal but there are one or two matters in the Bill that are, shall we say, gold-plated. I would like to cover those briefly, although not in any particular order.
	I was fascinated by the Olympic transport plan. I recall seeing some of the publicity surrounding the bid and I have this vision of the main Olympic sites in Wimbledon, Wembley and Stratford being connected by vehicle-free roads with competitors, spectators and others being whisked along, led by police outriders and lots of blue flashing lights. That is a very sexy and attractive image for those in the car behind the police outriders, but for the rest of London it could cause a few problems, even in August. Clauses 10 to 15 will require scrutiny because what is required is unclear. It is quite clear that the whole of London and the south east will have to keep the streets clean otherwise somebody will get at them and no doubt charge them for doing the cleaning.
	I would be interested to hear from my noble friend what exactly is the Olympic route network, what is the transport plan and what exactly do they intend to do? They can block up roads and regulate traffic—they could probably do that at the moment if they chose the legislation carefully—but we have to consider residents, traders and businesses. I am sure the problem can be resolved but to me it is extremely unclear and could cause major irritation, which would be a great shame over the next six years. The powers that the Government are seeking are slightly draconian, but we shall see about that.
	I turn to the construction of the facilities, particularly at Stratford. I declare an interest as chairman of the Rail Freight Group. These days, when large projects are constructed, there is usually a stated intention to bring in as many materials as possible by rail or water, if water is available and, of course, for the Olympics we have the Thames and the River Lea. I cannot see anywhere in the documentation any commitment to using rail freight for bringing in cement, aggregates and building materials. After all, the Channel Tunnel Rail Link has been built with an enormous amount of material brought in by rail, as was the Channel Tunnel—with which I was involved—and as is Terminal 5. How many lorries would have been required to bring in all that stuff, even to somewhere like Terminal 5, which is not in the centre of London? It is unimaginable.
	I was talking to someone today who may be bidding for the supply of cement. He said, "We can bring the cement up the river in 10,000, 20,000 or 30,000 tonne barges". Do you really want all that to be transferred to lorries or brought in from outside by lorry? My worry is that, to my knowledge—and I checked last week—the rail freight industry has not been consulted at all. If you want to bring things in by rail—I expect the same applies to the river—you have to have facilities. There are some facilities on the Stratford site. Very helpfully during the bid stage I had a discussion with the LDA, which said, "We're going to remove all those facilities at the start of the job because we need to construct a car park there—a single storey car park at ground level. The Queen will drive through it and she does not want to get cement dust on the Royal car".
	I said, "It's possible to build multi-storey car parks these days and, anyway, you said that you were not having car parks on the site so why not leave the facility that could supply concrete by rail to help build the site?". Someone grudgingly replied that they might do and I said that they might have to build another siding somewhere else to receive other materials. They said, "There isn't anywhere else". I said, "Well we could help look", but they were not interested. I have heard that there is a certain disagreement between TfL and the Olympic Delivery Authority over this very issue. I think that it is absolutely fundamental. There should be some environmental consideration of the problems of construction. Otherwise, the communities around Stratford will get very angry. It is quite possible to solve but somebody needs to start planning now.
	I had a discussion with the LDA about rail freight going through Stratford during the Games because a large amount goes through Stratford. It will all go underneath in the depths. The LDA said, "We will have to stop it for three months", which effectively means that the ports of Felixstowe and Tilbury and other places may have to stop running rail freight containers for three months because the container might contain a bomb. I said that a passenger train could also carry a bomb and they replied that they had already decided. I said, "Have you talked to the Department for Transport security department—TRANSEC—to the Metropolitan police or MI5?". They said, "Who is TRANSEC?", which showed how good the research was. Eventually, I received letters saying that they were not going to stop trains after all. I hope that my noble friend will give me some comfort that that is still the case because it was not done in a very professional way.
	There is a nasty clause—Clause 17—which gives the Government powers to give directions to an independent rail regulator. We have had problems with this on Crossrail—rather worse problems actually which have been addressed and discussed, but it is not necessary for the Games. Everyone will work together to make sure that the passenger trains can get there and to make sure that the contractual rights that other operators have are not affected. If they are affected, they will have to be compensated.
	The Department for Transport is now in charge of letting passenger franchises. I suggest to my noble friend that he tries to set a timetable for the franchises which will be serving that part of east London and lines leading into that area. They should not start letting franchises around the time of the Olympic Games, because one finds that the senior management of the companies bidding put all their efforts into winning the next franchise and the quality of service can deteriorate pretty fast. My noble friend has six years to sort this out. It also applies to the Docklands Light Railway. Let us let them two or three years beforehand or leave it until afterwards so that everyone can concentrate on making these wonderful Games a real success. I wish them well.

Baroness Thornton: My Lords, I start by adding my congratulations to the noble Baroness, Lady Valentine, on her excellent maiden speech. Like many noble Lords, I look forward to her continuing contributions to our business. I may be the least likely Member of your Lordships' House to participate in a debate about a sporting event. From a sporting point of view, as my family and friends will testify, I am certainly the least qualified. However, I am passionate about other matters that are inextricably linked to the winning of the 2012 Olympics, about which I feel strongly enough to endure the derision of others about my woeful ignorance about matters sporting.
	I welcome the words of my noble friend the Minister about Tony Banks, Lord Stratford. Tony would surely have enlivened proceedings today by telling us a few scurrilous tales about how the bid was won. He was a dear family friend for over 20 years. We hardly got to know him in your Lordships' House before he was taken from us, and it is indeed a terrible shame.
	I need to declare several interests, as a board member of Social Enterprise London, and as chair of the Social Enterprise Coalition, the national voice for social enterprise. I have worked, and work now, for several organisations that have an interest in the Olympic Games, such as London Remade, who worked with the London organising committee for the Games to ensure that the 2012 bid was the most sustainable ever submitted, and added to that bid green procurement and zero waste. I am also associated with a community-based organisation called O-Regen, which is based in Walthamstow, and whose employment programmes and community centres are exactly what is needed to benefit local people over the next six years in preparation for the Games. Finally, I was a resident of Hackney, one of the five Olympic boroughs, for almost 20 years. I hope that at long last Hackney will get some of the infrastructure it needs as a result of the Games. Indeed, it is my association with community-based organisations and businesses, and my long association with east London, that led me to express the hope that the Olympics will belong to London, and the east of London.
	My right honourable friend the Secretary of State and her team, along with the noble Lord, Lord Coe, the Prime Minister and the Mayor of London, and indeed the young Londoners they took with them to Singapore, are a huge credit to all of us. They did a magnificent job winning the bid. Although I am not a sporty person myself, I supported the bid from the outset, and am enormously excited by the possibilities the Olympics offer, not just to London, but to the UK. Indeed, my home county, Yorkshire, was one of the first to support and then welcome the 2012 Olympics, with Terry Hodgkinson, the chairman of Yorkshire Forward, saying:
	"we will be looking to attract more athletes to train in the region and are looking forward to showing the world what we have to offer".
	I think I have even travelled home on one of the GNER 2012 trains.
	The Olympics are a huge undertaking, and I am confident we will produce a brilliant and sustainable Games. My interests lie in the legacy of the Games and the benefits to social enterprise and local businesses, communities and local people over the next six years, during the Games and thereafter. My questions about the Bill are centred on whether the proposals, structures and powers are robust enough and will enable and ensure the delivery of these benefits. This is the test I will be bringing to this Bill in its passage through your Lordships' House.
	The fact that the indices of deprivation state that, of the 354 local authorities, three of the five London Olympic boroughs are the fourth, fifth and 11th most deprived communities in the UK—and the other two are in the top 50—tells us that it will not be enough to allow either the marketplace or the default position of public procurement to rule. In other words, to revert to the comfort zone of very large developers and huge management facility companies cleaning up on the big contracts for the Games would mean that much of the real wealth would be lost to the areas that are intended to benefit from them. Part of the planning has to include a commitment to enable the boroughs and communities; schools and colleges; businesses large and small, traditional and social; and the full range of charity and voluntary organisations to play their part. We do not want an Olympics "done unto" the Lea Valley and the East End of London. We want an Olympics that draws on, builds on and invests in the Lea Valley and the East End of London.
	That will require imagination and long-term aspirational thinking to deliver regeneration to the Lea Valley, wider London and the UK. This is the challenge facing the Government, the Mayor and the ODA. Contracts are already being granted, so no time is to be lost. To illustrate my point, Greenwich Leisure operates leisure facilities in all five London Olympic boroughs, and other London boroughs. It is a social enterprise, which means that its profits are ploughed back into developing community based sports facilities; it means that its governance is locally-based and controlled and that its whole focus is on providing great sports and leisure facilities for local, often poor and diverse communities in London. Already, Greenwich Leisure has started a "kids swim free" initiative as part of its Olympics endeavour. It will provide a special Olympic card for every London school pupil. There is no doubt that Greenwich Leisure and other community-based enterprises, like O-Regen, are perfect for ensuring that the link between training and employment is kept at local level and in a long-term investment in both the five Olympic boroughs and the wider London community. Greenwich Leisure and other local businesses are worried that if the procurement regime bundles contracts together without regard to local employment and impact, in some cases they will not even get the opportunity to tender properly.
	I was somewhat though not wholly reassured by the briefing received from the Mayor of London for tonight's debate, which states that,
	"contract and supply chain opportunities for businesses large and small",
	will be addressed, and that,
	"facilities for new jobs",
	will be created. It must be the case that we need a supply of skilled people to do the necessary building. But London's colleges have already missed the boat for this academic year. We need to see the investment for the courses being put in place now, to start in September 2006. However, my understanding is that the Learning and Skills Council is cutting back on its local delivery organisations in the capital and that the delivery of a skilled workforce might already be a challenge. So I hope that the LDA, the Olympics body and the Mayor are already battering on the door of the DfES about this. Perhaps a bit of joined-up government is needed here.
	In my final remarks I wish briefly to address the issue of London's children and young people. The bid team took those wonderful youngsters with them to illustrate the youthful, modern, multiracial nature of London's bid and London 2012. Having put children and young people at the heart of the bid, surely we need to put children and young people at the heart of delivery of the games. I have to ask, looking through all the documentation so far, where are the children and young people? I hope that as well as the sustainable and environmental measures that are planned, and those against which the games will be measures, we will also be looking for an input and a voice for London's children and young people, because this is an opportunity to bring games and sports back into the lives of London's schools and to establish for all London's children the benefits that that would represent for the long-term health of a generation. We not only need to address the needs of the youngsters who we hope will reach the excellence and expertise that allow them to participate in the games in 2012, but we need to address the needs and expectations of all London's children and young people.
	I wish the Bill well through your Lordships' House and look forward to my noble friend the Minister's response to this excellent debate.

Baroness Hamwee: My Lords, I was able to make a note saying that I know that the noble Baroness, Lady Valentine, will make an enormous contribution to the work of this House based not just on her speech today but on the evidence of our encounters over a long period. She appeared not even to need the security blanket of a set of notes. I find that not only admirable but truly astonishing. She may have noticed that the rest of us are clutching pieces of paper.
	Where each of us was at 12.47 on 6 June 2006 may be a question that we ask, and exchange anecdotes on, for some time. I declare an interest in that I am the chair of the London Assembly, which incidentally means that I wear the badge that Tony Banks once wore. Because of that, I was in the press gallery at City Hall. A radio station wanted me there for a live reaction to the announcement, whatever it was to be. When it happened, the producer back in the studio was so excited that he forgot about it. I say to my noble friend Lord Addington and to the noble Baroness, Lady Billingham, that I was undignified. I did not leap—I do not do leaping—but I did shout, somewhat to my own surprise. Like many others, I did not know until that moment quite how much I cared, nor, indeed, how patriotic I felt about the Games. Being in a position to see the Red Arrows flying over London just after the announcement rather consolidated that feeling.
	Over the next six or seven years, those who ask the most penetrating questions about the Games will be not the Games' opponents, detractors or Cassandras but those who care most about making them a huge success. I include in that our own two Olympians and other athletes, who must know a thing or two about careful and determined preparation. I refer to the success of the Games in all their aspects—the Olympics, the Paralympics, the cultural Olympics and their legacy.
	Discussion about the Paralympics is often, if not an afterthought, at least a second thought, so I thought that I might start with them because London led the way in 1948, I understand. I only recently discovered that they are in fact the parallel Olympics and they came about because doctors in London were advocating the benefits of exercise for those who were coping with war injuries. London has a great opportunity to distinguish itself again in ensuring that the facilities, the venues and the transport are fully accessible—I stress the word "fully". That, as my noble friend Lord Addington said, will have the incidental benefit of making things very much easier not for those who come within what most of us might think of as "disabled" but for those who hesitate because they have minor mobility problems, those who have young children and many more.
	London, I believe, must facilitate the Olympic Games as a spectator sport for people who have disabilities and the Paralympics as a spectator sport for able-bodied people, as well as vice versa. With regard to success in making people aware of the Paralympics, a great deal is owed to our own Paralympic athletes, who are very much a part of the bid. It also occurred to me to pay credit to the BBC, one of whose idents—I thought of them as interludes—feature wheelchair users in the red-themed advertisements. I am sure that we will look at this in detail in Committee, but I wondered why the section of the GLA Act which imposes a requirement to have regard to promotion of equality of opportunity and has anti-discrimination provisions is not imposed not just on the ODA but on TfL and the LDA. There may be historical reasons for that.
	Modern legislation also includes sustainability duties and, as I think the noble Lord, Lord Brooke, said, we may well wish to explore in detail in Committee what is in the Bill now in that regard. The Mayor has said that these will be the greenest Games ever, and the way in which the Games are delivered, both with regard to disability issues and sustainability, will profoundly affect what is delivered. So, rightly, we are all interested in the how as well as the what.
	Volunteers will be queuing up to be involved. That was one of the successes of the Manchester Commonwealth Games. The culture of volunteering is one of huge potential legacies. I understand that more than 70,000 expressions of interest have already been made. These people are a resource for organisations in the run-up. The day when we were originally to have debated the Second Reading of the Bill, I read about an organisation called the Africa Foundation Stone, which received £1,000—a tiny amount in this context—from Volunteer 2012 to hold an Olympic-themed event, a football tournament for young people. The group was formed five years ago by refugees from the Congo who aim to break down the barriers facing Africans living in east London. Sport is a tool, as the noble Baroness, Lady Thornton, was saying. That is just the sort of example to inspire us and show the benefits that can be reaped.
	There are also hundreds of community groups in the area with the potential to play a part in the cultural Olympics. We have not had any mention of those tonight. There is no mention of them in the Bill; I hope there is no significance in that.
	To succeed—I echo the noble Baronesses, Lady Thornton and Lady Valentine—the community as a whole and local communities need to be taken along with the preparation for the Games and the establishment of a legacy. We cannot have people saying, as some said of Manchester, that they did not get the maximum benefit because they did not feel that the organisers of the Games tried to incorporate opportunities for local businesses into their planning. That was the Federation of Small Businesses, and I should say that it was not a universally shared view, but it is, perhaps, a warning.
	There is a responsibility—I put it that highly—to create jobs for, and to skill, local people. None of that can be understated. I take the view that the ODA needs to set targets for the employment of local people, the granting of contracts to small and medium-sized enterprises, to BME and indeed to women-led businesses right from the start. I do not underestimate the difficulties, but assisting such businesses to bid—providing information, helping them through the tendering process—is hugely important. I commend what the LDA is doing thus far, but it is going to have to do a great deal and be very imaginative if it is to fulfil a role as champion for the area.
	There has inevitably been much scepticism over the cost of the Games, and that has been shared tonight. People keep asking whether the Games will be delivered on time and to budget. Asking whether they will be delivered on time is a nonsense, because if they are not on time, they will not be delivered. Perhaps, however, I am not the only person who has heard the story of the noble Lord, Lord Coe, about the Greek workman who said that there was no need to worry about the completion of the stadium in Athens if the opening ceremony was not going to be until the evening.
	Openness on the budget, as well as keeping it under control, is essential. I may be hampered by being a lawyer, but I am not as reassured as others have been—or as the Mayor tells me I should be—that the memorandum of understanding between the Mayor and the Government protects London council tax payers. The paragraph in what is quite a short agreement—even as a lawyer, I congratulate them on that—says that it means the "expectation" of Ministers and the Mayor is that the amounts set out in the memorandum be met by the National Lottery and council tax precept, and that the LDA will continue to be available should it be required; and that Ministers and the Mayor agree to "review" the arrangements. That, to me, is an agreement to agree, not any sort of guarantee.
	There is much reliance, as noble Lords have said, on the lottery. There must be uncertainties in a changing economic situation about how much the lottery can be expected to raise. I understand that the scratch card—which was printed initially in Atlanta, but now moved to Leeds—did not enjoy as much success as had been hoped for, so there is ground already to be made up.
	The amount paid by London council tax payers will be very topical during the next couple of months as the first precept is received. Wearing my London Assembly hat, I am keen that we ensure that what Londoners and others on their behalf pay is what they thought they had signed up to when they sent all those texts and e-mails in support; that is, £20 a year at band D for 10 or perhaps 12 years. If other costs are associated with the Games—I say that there are because £500,000 has already been allocated in the core GLA budget for associated costs next year—they should be made absolutely clear, because we all ought to know what is needed.
	The London Assembly has already asked the Mayor and the LDA a lot of questions—constructively, I hope—and I assure the noble Lord, Lord Glentoran, that if any proposal is made to take over the Centre Court at Wimbledon, we will be on to it. I suspect that it will not get permission for capital funding. We have had also a useful correspondence with the Minister for Sport about the role of the Assembly, and I will seek in Committee to be very precise about this. For now, I shall say simply that I am very keen that the Assembly has the powers as well as the will to play a full part in scrutinising the London bodies involved and their London activities, including the ODA.
	Although I do not doubt the Government's good intentions, I observe that their control of the ODA is enormous. The Secretary of State appoints not just the chair and all the members, but the chief executive, the finance director and the director of transport. Are the Government paranoid, or is it me? Despite all those powers of appointment and dismissal, Clause 23(6) states that the ODA must go on with versions of its strategy,
	"until it obtains the Secretary of State's approval",
	or, in the vernacular, it gets it right. And the Secretary of State still has powers of direction.
	There must be openness in the way the ODA operates. We have had the report of the Delegated Powers and Regulatory Reform Committee. Although it does not make any negative comments on the Bill, we have seen the memo from the Department for Constitutional Affairs. That draws attention to the large number of delegated powers, which mean that there will be a large number of instances where Parliament can be involved and say yes or no, but cannot amend what the Government propose.
	I continue the theme of clarity, but turn to transport. The London boroughs are concerned to know the likely extent of the Olympic route network—the noble Lord, Lord Berkeley, touched on that; the extent to which measures such as Olympic lanes will be imposed; the extent to which they are necessary; and when the ODA's traffic powers will start. I do not need to repeat what my noble friend had to ask about transport, but the points that he made about the lead-in time are those which the noble Lord, Lord Berkeley, made and we need to explore them.
	It is inevitable that one will sound negative when speaking on a Bill at this stage, but we have a job to do. The Olympic Games and Paralympic Games should stretch our horizons. They are about a "can do" attitude. We will do it; we will do it very well. The amendments from these Benches and, I am sure, from around the House will be designed to contribute to that.

House adjourned at one minute past eleven o'clock.
	Correction On Tuesday 10 January, at col. 81, the speech made by Viscount Tenby was inadvertently misattributed to Lord Northbourne. Wednesday, 11 January 2006.